Crown Castle International Inc.(CCI) declared second quarter 2011 results in line with the Zacks Consensus Estimate. The solid performance was primarily driven by higher usage of smartphones and increased deployment of 4G networks.
Net profit
Quarterly GAAP net income was approximately $25.7 million or 9 cents per share compared with a net loss of $102.7 million or a loss of 36 cents per share in the year-ago quarter. Second quarter 2011 EPS of 9 cents was exactly in line with the Zacks Consensus Estimate.
Revenue
Net revenue in the reported quarter was $500.3 million, up 9.7% year over year and also exceeded the Zacks Consensus Estimate of $498 million. This was mainly due to improved performance by the Site Rental segment.
Margins
Gross margin in the reported quarter was 70.6% compared with 68.1% in the year-ago quarter. Operating income was $167.1 million compared with $132.9 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $319.9 million, up 14.2% year over year. Recurring cash flow (adjusted EBITDA excluding interest expense and sustaining capital expenditure) in the second quarter of 2011 was roughly $188.9 million, up 21.9% year over year.
Cash Flow
During the second quarter of 2011, Crown Castle generated $283.8 million in cash from operations versus $248.2 million in the prior-year quarter. Free cash flow (cash flow from operation less capital expenditure) during the second quarter of 2011 was $167.1 million versus $156.4 million in the year-ago quarter.
Balance Sheet
During the second quarter of 2011, Crown Castle had cash & marketable securities of approximately $108.1 million on its balance sheet compared with $112.5 million at the end of fiscal 2010. Total debt was approximately $6,785.6 million in the reported quarter versus $6,750.2 million at the end of fiscal 2010. At the end of the second quarter of 2011, debt-to-capitalization ratio was 0.74 versus 0.73 at the end of fiscal 2010.
Share Repurchase
During the second quarter of 2011, Crown Castle repurchased 3.6 million common shares worth $150.3 million at an average price of $41.62.
Site Rental Segment
Quarterly revenue was $457.1 million, up 11.6% year over year. Gross margin (site rental revenue excluding site rental cost of operations) for the segment was 73.5% compared with 71.8% in the prior-year quarter.
Network Services Segment
Quarterly revenue was $43.2 million, down 7.1% year over year. Gross margin for the segment was 40% compared with 35.7% in the prior-year quarter.
Management Outlook for the Third Quarter of 2011
Management projected site rental revenue in the $461 million to $466 million range. Site rental cost of operation is expected in the band of $119 million to $124 million. Adjusted EBITDA is forecasted in the $319 million to $324 million range. Interest expense is guided in the range of $125 million to $130 million with capital expenditure between $5 million and $7 million and recurring cash flow in the range of $186 million to $191 million. Net income, on a GAAP basis, excluding dividend on preferred stocks, is expected in the range of $18 million to $47 million or 6 cents to 16 cents per share.
Management Outlook for Fiscal 2011
Crown Castle expects site rental revenue in the range of $1,840 million to $1,850 million. Site rental cost of operation is projected in the $478 million to $488 million range. Adjusted EBITDA is anticipated between $1,281 million and $1,291 million. Interest expense is estimated in the $502 million to $512 million range with sustaining capital expenditure in the range of $20 million to $25 million and recurring cash flow between $753 million and $763 million. Net income, on a GAAP basis, after deducting dividend on preferred stocks, is expected in the range of $90 million to $167 million or 32 cents to 59 cents per share.
Recommendation
Strong financial outlook and continuous share repurchase coupled with increased roll outs of 3G/4G high speed mobile voice, data, and video technology and higher smartphone usage will act as positive catalysts for the stock, going forward. However, huge debt and stiff competition from American Tower Corp. (AMT) and SBA Communications will act as negative catalysts for the stock.
We, thus, maintain our long-term Outperform recommendation for Crown Castle. Currently, Crown Castle holds a Zacks#3 Rank, implying a short-term Hold rating.
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