United States Cellular Corp. (USM), a subsidiary of Telephone and Data Systems Inc.(TDS), 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. Quarterly Service revenues dropped 7% year over year to $843.5 million. Revenues from Equipment sales also grew 36% year over year to $114.3 million. Smartphone sales remained strong and represented penetration at 55% among postpaid customers. Total cell sites in service were 6,183 as compared to 7,748 in the second quarter of 2013.
Operating Expenses and Income
During the second quarter of 2014, total operating expenses rose 30% to $1 billion. The company reported operating loss of $50.3 million compared to an operating profit of $219.1 million in the second quarter of 2013.
ARPU & Churn
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 decreased to 6.5% from 6.8% in the year-ago quarter.
Subscriber Statistics
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.
Liquidity
U.S. Cellular exited the second quarter with cash and cash equivalents of $404.1 million compared to $342.1 million at the end of 2013.
Adjusted free cash flow amounted to $19.3 million compared to $52.8 million in the year-ago quarter. During the reported period, capital expenditures amounted to $143.9 million compared to $168.5 million in the year-ago quarter.
Guidance
For 2014, U.S. Cellular expects total operating revenues in the range of $3.9–$4 billion, adjusted income of $350–$450 million and capital spending of approximately $640 million.
Our Analysis
Higher churn in the post-paid and pre-paid segments remains a primary concern for U.S. Cellular with lower high-margin roaming revenues acting as a potent headwind. Heavy capital expenditures on LTE expansion, intense pricing competition from big players in the market and subsidies are some other headwinds facing the company. U.S. Cellular presently carries a Zacks Rank #3 (Hold).
Other 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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