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Crown Castle International Corporation (CCI - Analyst Report) reported financial results for the fourth quarter of 2013 where both its top and bottom line surpassed the Zacks Consensus Estimate. Moreover, the company raised its outlook for fiscal 2014. As a result, the stock price of Crown Castle rose by $1.53 or 2.07% to $75.30 in the after market trade.

Net profit

Quarterly GAAP net loss was approximately $34.9 million compared with $19.5 million in the year-ago quarter. However, adjusted earnings per share of 23 cents have easily surpassed the Zacks Consensus Estimate of 16 cents.

Revenues

Net revenue in the quarter increased 20.6% year over year to $798.4 million, outpacing the Zacks Consensus Estimate of $746 million. This was mainly due to improved performance by both the Site Rental and the Network Services segments.

Margins

Gross margin in the fourth quarter was 65.1% compared with 67.7% in the year-ago quarter. Operating income was $233.9 million versus $208.7 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $468 million, representing a year-over-year increase of 13%.

Cash Flow

During the fourth quarter of 2013, funds flow from operations (FFO) was $284 million versus $88 million in the prior-year quarter. FFO per share in the reported quarter was 89 cents compared with 30 cents in the year-ago quarter. Quarterly adjusted funds flow from operations (AFFO) was $359 million compared with $243million in the comparable year-ago quarter. AFFO per share in the reported quarter was $1.12 against 83 cents in the year-ago quarter.

Balance Sheet
    
At the end of the fourth quarter of 2013, Crown Castle had cash & marketable securities of approximately $223.4 million on its balance sheet compared with $441.4 million at the end of 2012. Total debt was approximately $11,490.9 million versus $10,923.2 million at the end of 2012. The debt-to-capitalization ratio was 0.62 versus 0.79 at the end of 2012.

Site Rental Segment

Quarterly revenues were $650.6 million, up 14.1% year over year. Gross margin for the segment was 71.3% compared with 73.8% in the prior-year quarter.

Network Services Segment

Quarterly revenues were $147.8 million, up by a massive 42.8% year over year. Gross margin for the segment was 37.7% versus 34.6% in the prior-year quarter.


Management Outlook for the First Quarter of 2014

Crown Castle expects Site Rental revenues in the range of $737–$742 million. Site Rental cost of operation is projected in the band of $226–$231 million. Adjusted EBITDA is anticipated between $509 and $514 million. Site Rental gross margin is expected between $508 and $513 million. Interest expense (inclusive of amortization) is estimated in the $144–$149 million range. FFO is estimated in the range of $321–$326 million. AFFO is estimated in the $370–$375 million range. Net income is expected in the range of $90–$123 million or 27–37 cents per share.


Management Outlook for 2014

Crown Castle expects Site Rental revenues to be in the range of $2,972– $2,982 million. Site Rental cost of operation is projected in the $924–$934 million range. Site Rental gross margin is expected between $2,043 million and 2,053 million.  Adjusted EBITDA is anticipated between $2,040 and $2,055 million. Interest expense (inclusive of amortization) is estimated in the $581–$591 million range. FFO is estimated in the range of $1,284–$1,299 million. AFFO is expected between $1,496 and $1,511 million. Net income is anticipated to be between $385 and $469 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 completed the transaction with AT&T Inc. (T - Analyst Report) to acquire exclusive rights of 9,700 wireless towers of the latter for a total consideration of $4.85 billion in cash. Such an extensive 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). Moreover, from the beginning of 2014, Crown Castle started operating as a REIT.

Crown Castle currently carries a Zacks Rank #2 (Buy).

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