Telephone and Data Systems Inc. TDS reported disappointing financial results in the first quarter of 2015. Both the top and the bottom line lagged the respective Zacks Consensus Estimate.
GAAP net income in the first quarter was $145.7 million or $1.33 per share compared with $18.2 million or 16 cents in the year-ago quarter. However, excluding special items, adjusted loss per share in the reported quarter stood at 12 cents, wider than the Zacks Consensus Estimate of a loss of 10 cents.
Revenues inched up 5% year over year to $1,251.6 million in the reported quarter but missed the Zacks Consensus Estimate of $1,303 million. The company reported quarterly operating income of $282.6 million compared with a mere $20.7 million in the year-ago quarter.
U.S. Cellular Division
The company’s wireless division United States Cellular Corp. USM reported first-quarter 2015 adjusted earnings per share of 13 cents, significantly above the Zacks Consensus Estimate of a penny.
First-quarter revenues of $965.2 million missed the Zacks Consensus Estimate of $1,008 million but increased 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 $137 million. Smartphone sales remained strong and represented 66.9% penetration among postpaid customers, up from 55.8% in the year-ago quarter. Total cell sites in service were 6,219 compared with 6,165 in the year-ago quarter.
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 added 12,000 prepaid customers in the same quarter as against 13,000 in the prior-year quarter.
TDS Division
In the reported quarter, revenues from the wireline segment came in at $176.1 million, down 1% year over year. Cable revenues improved a whopping 94% to $43.6 million while HMS revenues decreased 3% to $61 million.
At the end of the reported quarter, Telephone and Data Systems had 588,400 (down 0.9% year over year) wireline residential customers, 355,000 (down 4% year over year) wireline commercial customers and 271,000 (up 81.4% year over year) cable connections. Total wireline residential revenue per connection stood at $42.32, up 3.8% year over year.
Liquidity
Telephone and Data Systems exited the first quarter with cash and marketable securities of $635.1 million compared with $471.9 million at the end of 2014. At quarter-end, total debt was $1,994.3 million as against $1,993.6 million at the end of 2014. The debt-to-capitalization ratio stood at 0.30 in comparison with 0.33 at the end of 2014.
In first-quarter 2014, Telephone and Data Systems generated $355.3 million of cash from operations compared with $104.9 million in the prior-year quarter. Quarterly free cash flow was $188.8 million against a negative $46 million in the year-ago quarter.
Guidance
For fiscal 2015, TDS Telecom maintains 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.
Stocks to Consider
Telephone and Data Systems currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Nippon Telegraph and Telephone Corp. NTT and Level 3 Communications Inc. LVLT. Both the stocks carry a Zacks Rank #2 (Buy).
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