American Tower Tops Estimates - Analyst Blog

American Tower Corp. (AMT) today declared its second quarter 2010 financial results. On a GAAP basis, second quarter net income was $99.7 million or 25 cents per share compared with a net income of $56.3 million or 14 cents per share in the prior-year quarter. EPS of 25 cents was well above the Zacks Consensus Estimate of 20 cents. 

Higher revenues from the U.S., Latin America and Asia delivered solid results with strong growth in both Adjusted EBITDA and Recurring Free Cash Flow. 

Revenue 

Total revenue of $469.9 million increased 11.0% year over year and was above the Zacks Consensus Estimate of $464 million. The solid top-line performance was driven by healthy growth of the company’s core Rental and Management business segment. 

Margins 

Adjusted EBITDA in the second quarter 2010 was $321.0 million, up 11.7% over the prior-year quarter. Adjusted EBITDA margin was 68%. Adjusted EBITDA growth was positively impacted by approximately 1.0% due to foreign currency exchange rate fluctuations and approximately 3.5% due to straight-line revenues and expense recognition. 

Gross margin was 76.9% in the same quarter compared with 76.6% in the year-ago quarter. Selling, general & administrative expenditure was $53.6 million compared with $49.9 million in the year-ago quarter. 

Share Repurchase 

During the reported quarter, American Tower repurchased 3.5 million shares of its Class A common stock for a total consideration of approximately $144.8 million. 

Balance Sheet 

At the end of the reported quarter, the company had $330.8 million of cash & cash equivalents and around $4,153.7 million of outstanding debt on its balance sheet compared with $257.1 million of cash & cash equivalents and $4,211.6 million of outstanding debt at the end of the previous year. 

Cash Flow 

During the first half 2010, American Tower generated $516.4 million of cash from operations compared with $409.3 million in the prior-year period. Free cash flow (cash flow from operation less capital expenditure) was $383.9 million compared with $295.5 million in the year-ago period. Recurring cash flow upped 23.7% year over year to $236.4 million. 

Rental and Management Segment 

Revenues of $456.5 million were up 12.2% year over year. Gross profit increased 11.4% over the prior-year quarter to $354.3 million. Segment revenue growth was positively impacted by approximately 1.4% due to foreign currency exchange rate fluctuations and approximately 2.2% due to straight-line revenues recognition. 

Network Development Services Segment 

Revenues of $13.5 million fell 19.0% year over year. Gross profit decreased 10.0% over the prior-year quarter to $7.0 million. 

Tower Count 

During the quarter ended June 30, 2010, American Tower had a total of 28,035 communications towers of which 27,402 were for Wireless network, 432 for Broadcasting and the rest 201 for DAS (Distributed Antenna System). Regionally, United States had 20,594 towers, Mexico had 2,817 towers, Brazil 1,640, Chile 113 and India 2,871. 

Essar Telecom Infrastructure Private Limited Acquisition Update 

On July 26, 2010, the company received the requisite approval from India’s Foreign Investment Promotion Board in connection with its previously announced acquisition of Essar Telecom Infrastructure Private Limited (“ETIPL”). Accordingly, the company expects to close this acquisition by the end of the third quarter of 2010. 

The total cash consideration for the approximately 4,450 communication tower sites to be acquired in this transaction is estimated to be approximately $430 million. In addition, on July 23, 2010, the company borrowed approximately $350 million under its $1.25 billion senior unsecured revolving credit facility, which in addition to cash on hand, will be used to satisfy the company’s cash requirements at closing. 

Future Financial Outlook 

Based on its performance during the first half of 2010, along with its anticipation that its acquisition of ETIPL will be completed during the third quarter, the company is updating its Full Year 2010 outlook. 

For full fiscal 2010, revenues from the Rental & Management segment are expected to range between $1,850 million - $1,880 million. Income from continuing operations will be within the range of $315 million - $330 million. Adjusted EBITDA will be within the range of $1,280 million - $1,310 million. Cash flow from operating activities will be around $960 million - $990 million. Capital expenditures will be around $300 million - $350 million. 

Our Recommendation 

Currently, American Tower is a short-term Zacks #2 Rank (Buy) stock. We believe the positive sentiment among analysts was inspired by a significant surge in 3G wireless networks throughout the world. Massive growth of wireless data traffic is forcing wireless operators to continuously upgrade their networks, which in turn will benefit the tower industry. American Tower is best positioned to reap the harvest. 

At the same time, we also believe that its highly leveraged balance sheet remains a concern for the company. Competition is also increasing as Crown Castle International; the closest rival of American Tower is also diversifying and expanding its business. We thus maintain our long-term Neutral recommendation for American Tower.
 
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