U.S. Cellular (USM), the wireless subsidiary of Telephone and Data Systems (TDS), reported its second-quarter 2010 results with earnings per share of 47 cents, far behind the Zacks Consensus Estimate of 68 cents, while also declining from 94 cents a year ago. Net income plummeted 50% year over year to $40.8 million on account of lower revenues and higher operating expenses.
Revenue, ARPU & Churn
The Chicago-based cellular operator posted operating revenues of $1,030 million, down 1% year over year, missing the Zacks Consensus Estimate of $1,057 million. Service revenues, which fell 0.2% to $972.6 million, remain under pressure due to lower inbound roaming revenues resulting from Verizon's (VZ) acquisition of Alltel.
Data revenues, however, increased 33% year over year to $215.3 million, accounting for 22% of services revenues. ARPU (average revenue per user) was $52.71 compared with $52.39 a year ago. Postpaid churn reduced to 1.4% from 1.7% a year ago, helped by an expanded smartphone range.
Subscriber Statistics
U.S. Cellular registered a net loss of 3,000 customers during the quarter (an improvement from 88,000 net losses registered a year ago), bringing its total subscriber base to 6.14 million. The company exited the quarter with a retail customer base of 5.78 million. Postpaid customers accounted for 94% of the total retail customers.
Financial Condition
U.S. Cellular generated cash flow from operating activities of $251.4 million and spent $133.5 million in capital expenditures, resulting in a free cash flow of approximately $118.0 million. The carrier exited the quarter with $232.9 million in cash and cash equivalents and approximately $868 million in total debt.
Outlook
The company lowered its forecast for 2010 with service revenues projected between $3.925 million and $4,000 million and operating income of $200-$250 million compared with its prior forecast for service revenue of $3,975-$4,075 million and operating income of $250-$350 million.
Depreciation, amortization and accretion are expected to be approximately $600 million with a capital expenditure target of $600 million. Both remain unchanged. The carrier expects an adjusted OIBDA of $800-$850 million, down from the prior forecast of $850-$950 million.
Depreciation, amortization and accretion are expected to be approximately $600 million with a capital expenditure target of $600 million. Both remain unchanged. The carrier expects an adjusted OIBDA of $800-$850 million, down from the prior forecast of $850-$950 million.
Moving forward, U.S. Cellular’s prospects are expected to be driven by the expansion of its 3G network and premium handsets, which may continue to boost data revenues while keeping the churn rate in check. Moreover, the carrier is evaluating the potential adoption of Long-Term Evolution (LTE), a 4G mobile broadband technology. However, U.S. Cellular’s high-margin roaming revenues remain under pressure which may continue to affect service revenues.
TELEPHONE &DATA (TDS): Free Stock Analysis Report
US CELLULAR (USM): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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