Telephone and Data Systems Inc. (TDS) reported second-quarter 2014 loss of 20 cents per share, wider than the Zacks Consensus Estimate of a loss of 14 cents. The bottom line also deteriorated considerably from earnings of $1.44 per share reported in the year-ago quarter.
Revenues inched up 1% year over year to $1,236.4 million in the reported quarter and surpassed our projection of $1,200 million. The company reported operating loss of $49.1 million compared with $282.2 million in the year-ago quarter.
United States Cellular Corp. (USM)
The company’s wireless division U.S. Cellular reported second-quarter 2014 loss per share of 22 cents, wider than the Zacks Consensus Estimate of a loss of 15 cents. The bottom line also showed a marked deterioration from the year-ago quarter’s earnings of $1.71 per share. Second-quarter revenues of $957.8 million breezed past the Zacks Consensus Estimate of $924.0 million but decreased 4% from $995.1 million reported in the year-ago quarter.
The reported quarter’s retail billed ARPU (average revenue per user) increased to $53.36 from $50.60 in the year-ago quarter. Post-paid churn decreased to 1.7% from 2% in the second quarter of 2013. Prepaid churn also declined to 6.5% from 6.8% in the year-ago quarter.
U.S. Cellular witnessed net subscriber loss of 30,000 retail customers compared with loss of 127,000 in the year-ago quarter. The company exited the quarter with a retail customer base of 4,653,000 compared with 4,968,000, a year ago. Post-paid customer losses totaled 26,000, and prepaid business lost 4,000 customers.
TDS Telecom (Wireline)
Revenues from the wireline segment declined 1% year over year to $180.7 million. Cable operating revenues grossed $22.5 million while HMS revenues improved 64% to $68 million at the end of the second quarter.
At the end of the reported quarter, the company had 597,000 wireline residential customers, 365,500 wireline commercial customers and 150,700 cable connections, bringing the total subscriber base to 1.1 million. The company added 3,400 wireline residential and 1,300 cable customers over the last quarter while Commercial connections witnessed a loss of 4,300 customers.
Liquidity
Telephone and Data Systems exited the second quarter with cash and cash equivalents of $874.9 million compared with $830.0 million at the end of 2013. Long-term debt was $1,718.8 million compared with $1,720.1 million at year-end 2013.
In the second quarter, operating cash flow was $210.7 million as compared to $275.1 million at the end of the same previous-year period. Capital expenditure was $150.9 million, while free cash flow was $44.6 million compared to $67.2 million in the year-ago quarter
Share Repurchase
The company repurchased 650,628 shares in the second quarter of 2014 for an aggregate amount of $17.3 million.
Guidance
For fiscal 2014, TDS Telecom continues to expect total operating revenue of $1,050–$1,100 million. Adjusted income before income tax is estimated in the range of $260–$290 million while capital expenditure is forecasted around $200 million.
For 2014, U.S. Cellular expects capital spending of approximately $640 million.
Our Analysis
TDS Telecom currently carries a Zacks Rank #3 (Hold). Access line losses due to wireless substitution and other alternative services remain detrimental to growth. Further, higher churn in the post-paid segment, increased equipment subsidies and investments in network upgrade are likely to continue affecting results.
Better-ranked stocks like Shenandoah Telecommunications Co.(SHEN) with a Zacks Rank #1 (Strong Buy) andCincinnati Bell Inc. (CBB) with a Zacks Rank #2 (Buy) are worth considering within this sector.
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