MetroPCS Outperforms - Analyst Blog

MetroPCS Communications Inc. (PCS) reported second-quarter earnings of 22 cents, beating the Zacks Consensus Estimate of 13 cents by 9 cents. Results were substantially ahead of the 7 cents earned in the prior-year quarter. Net income was $79.9 million, comparing favorably with $26.2 million in second-quarter 2009.

Better-than-expected results were attributable to strong net subscriber additions coupled with lower churn largely driven by the continued acceptance of "Wireless for All" plans.

Total revenue of MetroPCS in the quarter was $1.0 billion, up 17.8% from $0.9 billion in the prior-year quarter. Results also surpassed the Zacks Consensus Estimate of $992 million. Improvement in service as well as equipment revenue in the quarter led to the overall climb.

Total operating expense was $814.1 million in the reported quarter, up from $743.8 million in the prior-year quarter.

Earnings before interest, tax, depreciation and amortization in the quarter under review were $322 million, up 37.6% from $234 million in second-quarter 2009.

Interest expense increased 7.1% year over year to $65.5 million in the quarter.

Operational Metrics

Average revenue per user (ARPU) was $39.84 in the second quarter of 2010, down 1.7% from $40.52 in the prior-year quarter.

In the reported quarter, churn decreased 250 basis points to 3.3% from 5.8% in second-quarter 2009. Continued acceptance of the company’s plan of "Wireless for All" led to lower churns.

Cost per user (CPU) increased 6% year over year to $17.90 in second-quarter 2010. A combination of increased handset subsidies for existing customers, inclusion of regulatory fees in the tax-inclusive service pricing on "Wireless for All" customers, and costs related to unlimited international calling service led to the increase.

Subscriber Statistics

Net subscriber additions of 303,009, increased from 205,585 in the prior-year quarter, again due to the successful "Wireless for All" plan.

Consolidated penetration of covered population in the quarter was 8.0%, compared with 7.2% in the year-ago quarter. At the end of the quarter, MetroPCS had approximately 7.3 million customers, up 22% year over year.

Financial Update

Cash and cash equivalent of $776.5 million at quarter-end declined 16.4% from $929.4 million since the end of fiscal 2009.

Long-term debt of MetroPCS decreased slightly by 0.07% to $3.6 billion at the end of second-quarter 2010.

Cash from operations totaled $337.5 million in the first half of 2010, down 28.2% from $466.0 million in the first half of 2009.

Capital expenditure in the first half of 2010 was $315.4 million compared with $455.1 million in the year-ago period.

The company is well positioned to post strong results going forward riding on the success of the "Wireless for All" product and service offerings and the upcoming launch of the 4G LTE network.

We maintain our "Neutral" recommendation on MetroPCS. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.

 

 
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