United States Cellular Corp. USM reported mixed financial results in the first quarter of 2015. While net income significantly surpassed the Zacks Consensus Estimate, revenues lagged the same. The company, which is a subsidiary of Telephone and Data Systems Inc. TDS, also raised its fiscal 2015 outlook.
In first-quarter 2015, GAAP net income was $160.1 million or $1.89 cents per share compared with $19.5 million or 23 cents per share in the year-ago quarter. Quarterly adjusted earnings per share of 13 cents were way ahead of the Zacks Consensus Estimate of a penny.
First-quarter revenues of $965.2 million missed the Zacks Consensus Estimate of $1,008 million. However, the figure improved 4% from $925.8 million reported in the year-ago quarter. Quarterly Service revenues decreased 3% to $828.3 million. Revenues from Equipment sales were up by a substantial 90% to stand at $137 million.
Smartphone sales remained strong and represented 66.9% penetration among postpaid customers, up from 55.8% recorded in the year-ago quarter. Total cell sites in service were 6,219 as compared to 6,165 in the year-ago quarter.
Operating Expenses and Income
In the first quarter of 2015, total operating expenses declined 22% to $714.9 million. The company reported operating income of $250.3 million compared with a mere $7.8 million in the prior-year quarter.
ARPU & Churn
Quarterly postpaid ARPU (average revenue per user) decreased to $54.87 from $57.59 in the year-ago quarter. Post-paid churn decreased to 1.5% from 2.3% in the first quarter of 2014. Prepaid ARPU increased to $35.72 from $32.22 in the prior-year quarter. Prepaid churn also decreased to 5.8% from 6.9% in the year-ago quarter. Quarterly total billed ARPU was $52.29 compared with $53.93 in the year-ago quarter. Total service revenue ARPU was $58.01 against $60.19 in the year-ago quarter.
Subscriber Statistics
United States Cellular exited the reported quarter with a subscriber base of 4,667,000 compared with 4,774,000 at the end of the year-ago quarter. Postpaid subscriber base was 4,307,000 against 4,174,000 at the end of the prior-year quarter. Meanwhile, prepaid subscriber base totaled 360,000 against 356,000 at the year-ago quarter’s end. In the reported quarter, United States Cellular added a net 9,000 postpaid subscribers compared with a net loss of 93,000 in the year-ago quarter. The company also gained 12,000 prepaid customers in the same quarter as against 13,000 in the prior-year quarter.
Liquidity
United States Cellular exited the first quarter with cash and cash equivalents of $336.9 million compared with $313.8 million at the end of 2014. At quarter-end, total debt stood at $1,152 million as against $1,151.8 million at the end of 2014. The debt-to-capitalization ratio was 0.25, flat sequentially.
In the first quarter of 2015, United States Cellular generated $255.5 million of cash from operations compared with $63.5 million in the prior-year quarter. Quarterly free cash flow stood at $155.1 million against a negative $34.7 million in the year-ago quarter.
Guidance
For fiscal 2015, United States Cellular expects total operating revenue in the range of $4.0–$4.2 billion, adjusted EBITDA of $580–$680 million and capital spending of approximately $600 million. The company expects operating cash flow in the range of $400-$500 million.
Other Stocks to Consider
United States Cellular currently sports a Zacks Rank #1 (Strong Buy). Other favorably-ranked stocks in the same industry are Verizon Communications Inc. VZ and BT Group Plc. BT. Both the stocks currently carry a Zacks Rank #2 (Buy).
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