Crown Castle International Corporation (CCI) reported fourth-quarter 2014 results wherein both its top and bottom line surpassed the Zacks Consensus Estimate. Moreover, the company raised its outlook for fiscal 2015 along with increasing its annual dividend payout. Crown Castle also completed the integration of nearly 9,700 towers under the AT&T, Inc. (T) tower deal.
Net Profit
Quarterly net income came in at approximately $137 million or 41 cents per share compared with net loss of $35 million or a loss of 11 cents in the year-ago quarter. The earnings figure handily beat the Zacks Consensus Estimate of 31 cents.
Revenues
Net revenue in the quarter jumped 21% year over year to $968 million, outpacing the Zacks Consensus Estimate of $939 million. The upside was primarily driven by improved performance by both the Site Rental and the Network Services segments.
Margins
Gross margin in the fourth quarter was 62.3% compared with 65.1% in the year-ago quarter. Operating income was $261.5 million versus $233.9 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $546 million, representing a year-over-year increase of 17%.
Cash Flow
During the fourth quarter, funds flow from operations (FFO) totaled $390 million versus $179 million in the prior-year quarter. Meanwhile, FFO per share in the reported quarter was $1.17 compared with 56 cents in the year-ago quarter. Quarterly adjusted funds flow from operations (AFFO) was $346 million compared with $291 million recorded in the comparable year-ago quarter. AFFO per share in the quarter was $1.04 against 91 cents in the year-ago quarter.
Balance Sheet
At the end of the quarter under review, Crown Castle had cash and cash equivalents of approximately $175.6 million on its balance sheet compared with $223.4 million at the end of 2013. At the end of 2014, debt and other long-term obligations were approximately $11,807.5 million versus $11,490.9 million at the end-2013. The debt-to-capitalization ratio stood at 0.63 in comparison with 0.62 at the end of 2013.
Segment Discussion
Site Rental Segment
Quarterly revenues were $761 million, up 17% year over year. Gross margin for the segment was 68.7% compared with 71.3% in the prior-year quarter.
Network Services Segment
Quarterly revenues were $206.2 million, up 39.5% year over year. Gross margin for the segment was 38.7% versus 37.7% in the prior-year quarter.
Outlook for First-Quarter 2015
For the first quarter, Crown Castle expects Site Rental revenues in the range of $762 million to $767 million. Site Rental cost of operation is projected in the band of $236–$241 million. Adjusted EBITDA is anticipated between $542 million and $547 million. Site Rental gross margin is expected between $523 million and $528 million.
Interest expense (inclusive of amortization) is estimated in the $131–$136 million range. FFO is expected in the $368–$373 million band. AFFO is projected in the $363–$368 million range. Net income is forecasted at $111–$144 million or 33–43 cents per share. Net income attributable to CCIC common shareholders is estimated in the range of $99–$136 or $0.30–$0.41.
Outlook for Full-Year 2015
For 2015, Crown Castle expects Site Rental revenues in the range of $3,058–$3,078 million, up from the previous estimate of $3,047–$3,067 million. Site Rental cost of operation is projected in the $962–$977 million band. Site Rental gross margin is expected between $2,086 million and 2,106 million, up from the prior projection of $2,073–2,093 million.
Adjusted EBITDA is anticipated between $2,140 million and $2,160 million. Meanwhile, interest expense (inclusive of amortization) is estimated in the $528–$543 million range. FFO is projected at $1,437–$1,457 million. AFFO is expected between $1,445 million and $1,465 million.
Net income is anticipated between $445 million and $529 million or $1.33 and $1.59 per share, up from the previous guidance of $382–$474 million or $1.15–$1.42. Net income attributable to CCIC common shareholders is estimated in the range of $407–$498 million or $1.22–$1.49.
Our Take
Despite a highly leveraged balance sheet, we believe that a strong financial outlook, continuous acquisitions and accelerated 4G LTE network deployment will spur growth for Crown Castle going forward. Moreover, the company boasts an extensive tower portfolio which will likely safeguard its position against leading tower companies like American Tower Corp. (AMT) and SBA Communications Corp. (SBAC).
However, we believe that the evolution of new technologies may reduce the demand for site leases. Further, the development of satellite-delivered radio and video services will lower the need for tower-based broadcast transmission.
Crown Castle currently carries a Zacks Rank #3 (Hold).
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