Telephone and Data Systems Inc. TDS reported strong financial results in the third quarter of 2015. Both the top and the bottom line outpaced the Zacks Consensus Estimate.
GAAP net income in the second quarter was $51.1 million or 46 cents per share compared with a net loss of $116 million or a loss of $1.07 in the year-ago quarter. Quarterly earnings per share of 46 cents were significantly ahead of the Zacks Consensus Estimate of a loss of 6 cents.
Revenues rose 7.3% year over year to $1,373.8 million in the reported quarter surpassing the Zacks Consensus Estimate of $1,288 million. Operating expenses were $1,280.4 million, down 8.9% year over year. The company reported quarterly operating income of $93.4 million as against an operating loss of $125.4 million in the year-ago quarter.
U.S. Cellular Division
The company’s wireless subsidiary United States Cellular Corp. USM reported third-quarter 2015 adjusted earnings per share of 57 cents, significantly above the Zacks Consensus Estimate of loss of a penny.
Third-quarter revenues of $1,069 million were up 6.8% year over year surpassing the Zacks Consensus Estimate of $1,014 million. Quarterly Service revenues increased 5.3% to $896 million. Revenues from Equipment sales were up 15.8% to $173 million.
Smartphone sales remained strong and represented 72% penetration among postpaid customers, up from 62% recorded in the year-ago quarter. Total cell sites in service were 6,246 compared with 6,209 in the year-ago quarter. Smartphone sold as a percentage of total handsets constituted 87% compared with 81% in the prior-year quarter.
United States Cellular exited the reported quarter with a subscriber base of 4,807,000 compared with 4,674,000 at the end of the year-ago quarter. Postpaid subscriber base was 4,341,000 against 4,200,000 at the end of the prior-year quarter. Meanwhile, prepaid subscriber base totaled 380,000 against 350,000 at the year-ago quarter’s end. In the reported quarter, United States Cellular added a net 17,000 postpaid subscribers compared with 52,000 in the year-ago quarter. The company also gained 12,000 prepaid customers in the reported quarter against a net loss of 2,000 in the prior-year quarter.
TDS Division
In the reported quarter, total revenue came in at $299.4 million, up 9.6% year over year. Within the segment, revenues from the wireline segment came in at $175.1 million, down 1.7% year over year. Cable revenues improved a whopping 53.8% to $43.9 million while HMS revenues increased 20.9 % to $81.6 million.
At the end of the reported quarter, TDS division had 587,800 (down 0.8% year over year) wireline residential customers, 345,600 (down 4.6%) wireline commercial customers and 276,900 (up 7.6%) cable connections. Wireline residential revenue per connection stood at $42.83, up 3.3% year over year.
Cash Flow
In third-quarter 2015, Telephone and Data Systems generated $188.5 million of cash from operations compared with $180.6 million in the prior-year quarter. Quarterly adjusted free cash flow was a negative $5.7 million against a negative $15.3 million in the year-earlier quarter.
Liquidity
Telephone and Data Systems exited the third quarter with cash and marketable securities of $865.4 million compared with $471.9 million at the end of 2014. At quarter-end, total debt was $2,219.1 million against $1,993.6 million at 2014-end. Quarter-end debt-to-capitalization ratio stood at 0.32 in comparison with 0.33 at the end of 2014.
Guidance
For full year 2015, TDS division has reiterated its total operating revenue guidance in the range of $1130–$1,180 million. Both cash flow and adjusted EBITDA are estimated in the band of $280–$310 million while capital expenditure is forecasted at around $220 million.
Zacks Rank & Stocks to Consider
Telephone and Data Systems currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include CenturyLink Inc. CTL and Windstream Holdings Inc. WIN. Both the stocks carry a Zacks Rank #2 (Buy).
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