United States Cellular Corp. USM reported mixed financial results in the second quarter of 2015. While net income per share 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 second-quarter 2015, GAAP net income stood at $19.3 million or 23 cents per share compared with a net loss of $18.8 million or 22 cents per share in the year-ago quarter. Quarterly earnings per share of 23 cents were way ahead of the Zacks Consensus Estimate of 6 cents.
Seocnd-quarter revenues of $975.7 million missed the Zacks Consensus Estimate of $1,005 million. However, the figure improved 1.9% from $957.8 million reported in the year-ago quarter. Quarterly Service revenues decreased 2.3% to $824.4 million. Revenues from Equipment sales were up by a substantial 32.4% to $151.3 million.
Smartphone sales remained strong and represented 69.1% penetration among postpaid customers, up from 58.4% recorded in the year-ago quarter. Total cell sites in service were 6,223 as compared to 6,183 in the year-ago quarter. Smartphone sold as a percentage of total handsets sold was 86.7% against 79% in the prior-year quarter.
Operating Expenses and Income
In the second quarter of 2015, total operating expenses declined 4% to $967.2 million. The company reported operating income of $8.5 million compared with an operating loss of $50.3 million in the prior-year quarter.
Liquidity
United States Cellular exited the second quarter with cash and cash equivalents of $362.3 million compared with $211.5 million at the end of 2014. At quarter-end, total debt stood at $1,152.1 million as against $1,151.9 million at the end of 2014. The debt-to-capitalization ratio was 0.20 compared with 0.26 at the end of 2014.
Cash Flow
In the second quarter of 2015, United States Cellular generated $168.5 million of cash from operations compared with $149.3 million in the prior-year quarter. Quarterly adjusted free cash flow stood at $32.8 million against $19.3 million in the year-ago quarter.
ARPU & Churn
Quarterly postpaid ARPU (average revenue per user) decreased to $53.62 from $56.82 in the year-ago quarter. Post-paid churn decreased to 1.3% from 1.7% in the second quarter of 2014. Prepaid ARPU increased to $35.98 from $34.02 in the prior-year quarter. Prepaid churn also decreased to 5.2% from 6.5% in the year-ago quarter. Quarterly total billed ARPU was $51.29 compared with $53.36 in the year-ago quarter. Total service revenue ARPU was $57.55 against $60.32 in the year-ago quarter.
Subscriber Statistics
United States Cellular exited the reported quarter with a subscriber base of 4,779,000 compared with 4,653,000 at the end of the year-ago quarter. Postpaid subscriber base was 4,324,000 against 4,148,000 at the end of the prior-year quarter. Meanwhile, prepaid subscriber base totaled 368,000 against 352,000 at the year-ago quarter’s end. In the reported quarter, United States Cellular added a net 17,000 postpaid subscribers compared with a net loss of 26,000 in the year-ago quarter. The company also gained 8,000 prepaid customers in the same quarter against a net loss of 4,000 in the prior-year quarter.
Guidance
For fiscal 2015, United States Cellular expects total operating revenue in the range of $4.0–$4.1 billion, adjusted EBITDA of $600–$700 million and capital spending of approximately $600 million. The company projects operating cash flow in the band of $440-$540 million. Management expects 94% of its footprint will be covered under 4G LTE network by the end of 2015.
Other Stocks to Consider
United States Cellular currently sports a Zacks Rank #1 (Strong Buy). Other favorably-ranked stocks in the same industry are AT&T Inc. T and T-Mobile US Inc. TMUS. Both the stocks currently carry a Zacks Rank #2 (Buy).
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