Telephone and Data Systems Inc. TDS reported mixed financial results in the second quarter of 2015 wherein the bottom line significantly outpaced the Zacks Consensus Estimate while the top line lagged the same.
GAAP net income in the second quarter was $23 million or 21 cents per share compared with a net loss of $22.1 million or 20 cents in the year-ago quarter. However, excluding special items, adjusted earnings per share in the reported quarter stood at 18 cents, way ahead of the Zacks Consensus Estimate of a penny.
Revenues inched up 3% year over year to $1,276.4 million in the reported quarter but missed the Zacks Consensus Estimate of $1,289 million. Operating expenses were down $1,244.3 million, down 3% year over year. The company reported quarterly operating income of $32.1 million compared with an operating loss of $49.1 million in the year-ago quarter.
U.S. Cellular Division
The company’s wireless division United States Cellular Corp. USM reported second-quarter 2015 earnings per share of 23 cents, significantly above the Zacks Consensus Estimate of 6 cents.
Second-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 stand at $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. Smartphones sold as a percentage of total handset was 86.7% against 79% in the prior-year quarter.
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.
TDS Division
In the reported quarter, total revenue came in at $294.8 million, up 9% year over year. Within the segment, revenues from the wireline segment came in at $176 million, down 3% year over year. Cable revenues improved a whopping 98% to $44.6 million while HMS revenues increased 11% to $75.6 million.
At the end of the reported quarter, Telephone and Data Systems had 588,100 (down 1.5% year over year) wireline residential customers, 350,600 (down 4.1% year over year) wireline commercial customers and 272,900 (up 81.1% year over year) cable connections. Wireline residential revenue per connection stood at $42.10, up 2.6% year over year.
Liquidity
Telephone and Data Systems exited the second quarter with cash and marketable securities of $631.6 million compared with $471.9 million at the end of 2014. At quarter-end, total debt was $1,994.2 million as against $1,993.6 million at the end of 2014. Quarter-end debt-to-capitalization ratio stood at 0.30 in comparison with 0.33 at the end of 2014.
Cash Flow
In second-quarter 2014, Telephone and Data Systems generated $183.1 million of cash from operations compared with $210.7 million in the prior-year quarter. Quarterly adjusted free cash flow was a negative $2.5 million against a positive $44.6 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 AT&T Inc. T and T-Mobile US Inc. TMUS. Both the stocks carry a Zacks Rank #2 (Buy).
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