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Crown Castle International Corporation (CCI - Analyst Report) reported third-quarter 2013 adjusted earnings per share of 16 cents against 14 cents in the year-ago quarter. The figure also missed the Zacks Consensus Estimate by a penny.

Net profit

Quarterly GAAP net income was approximately $45.8 million compared with $42 million in the year-ago quarter.

Revenues

Net revenue in the quarter increased 20.6% year over year to $749 million, surpassing the Zacks Consensus Estimate of $726 million. This was mainly due to improved performance by both the Site Rental and the Network Services segments.

Margins

Gross margin in the third quarter was 64.8% compared with 70.2% in the year-ago quarter. Operating income was $222.8 million compared with $220.8 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $440.6 million, representing a year-over-year increase of 10%.

Cash Flow

During the third quarter of 2013, funds flow from operations (FFO) was $271.7 million versus $221.3 million in the prior-year quarter. FFO per share in the reported quarter was 93 cents compared with 76 cents in the year-ago quarter. Quarterly adjusted funds flow from operations (AFFO) was $318.2 million compared with $229.9 million in the comparable year-ago quarter. AFFO per share in the reported quarter was $1.09 against 79 cents in the year-ago quarter.

Balance Sheet
    
At the end of the third quarter of 2013, Crown Castle had cash & marketable securities of approximately $218.6 million on its balance sheet compared with $441.4 million at the end of 2012. Total debt was approximately $10,660.1 million at the end of the reported quarter versus $10,923.2 million at the end of 2012. The debt-to-capitalization ratio was 0.78 versus 0.789 at the end of 2012.

Site Rental Segment

Quarterly revenues were $620.8 million, up 15.2% year over year. Gross margin for the segment was 70.7% compared with 74.9% in the prior-year quarter.

Network Services Segment

Quarterly revenues were $128.2 million, up by a massive 55.2% year over year. Gross margin for the segment was 36% versus 39.5% in the prior-year quarter.


Management Outlook for the Fourth Quarter of 2013

Crown Castle expects Site Rental revenues in the range of $625 million to $630 million. Site Rental cost of operation is projected in the band of $180 million to $185 million. Adjusted EBITDA is anticipated between $441 million and $446 million. Site Rental gross margin is expected between $443 and $448 million. Interest expense (inclusive of amortization) is estimated in the $140 - $145 million range. FFO is estimated in the range of $271 million to $276 million. AFFO is estimated in the $318 – $323 million range. Net income is expected in the range of $29 million to $69 million or 10 cents to 24 cents per share.

Management Outlook for 2013

Crown Castle expects Site Rental revenues to be in the range of $2,478 million to $2,483 million. Site Rental cost of operation is projected in the $718 million to $723 million range. Site Rental gross margin is expected between $1,757 to 1,762 million.  Adjusted EBITDA is anticipated between $1,766 million and $1,771 million. Interest expense (inclusive of amortization) is estimated in the $587 million to $592 million range. FFO is estimated in the range of $1,033 million to $1,038 million. AFFO is expected in the $1,230 million to $1,235 million range. Net income is expected to be between $147 million and $187 million or 50 cents to 64 cents per share.


Management Outlook for 2014

Crown Castle expects Site Rental revenues to be in the range of $2,967 million to $2,982 million. Site Rental cost of operation is projected in the $919–$934 million range. Site Rental gross margin is expected between $1,757 million to 1,762 million.  Adjusted EBITDA is anticipated between $2,038 million and $2,053 million. Interest expense (inclusive of amortization) is estimated in the $563–$573 million range. FFO is estimated in the range of $1,341 million to $1,356 million. AFFO is expected between $1,546 million to $1,561 million. Net income is anticipated to be between $199 million and $340 million.

Our Take

Despite a highly leveraged balance sheet, we believe that a strong financial outlook, continuous acquisitions and huge demand for network due to increased usage of smartphones will act as tailwinds for the company, going forward.

Recently, the company has entered into a definitive agreement with telecom giant AT&T Inc. (T - Analyst Report) to acquire exclusive rights of 9,700 wireless towers of the later for a total consideration of $4.85 billion in cash. Such huge tower portfolio will most likely safeguard its position against leading tower companies like American Tower Corporation (AMT - Analyst Report) and SBA Communications Corp. (SBAC - Snapshot Report).
 

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