Millicom Outperforms

Millicom International Cellular SA (MICC) today declared its fiscal third quarter results. Total revenues of $856.2 billion were an improvement of 7% year over year as well as 5.1% sequentially. Revenues were ahead of the Zacks Consensus Estimate of $842 million. This was primarily due to impressive contribution from the Amnet & Navega division and the African region. On a GAAP basis, net earnings in the third quarter was $142.7 million or an income of $1.31 per share compared to a net income of $161 million (an income of $1.49 per share) in the prior-year quarter and a net income of $114.3 million (an income of $1.05 per share) in the previous quarter. EPS was also above the Zacks Consensus Estimate of $1.19.
 
Quarterly gross margin was 78.9% compared to 75% in the year-ago quarter and 79.2% in the previous quarter. This reflects the aggressive cost cutting measures taken by management during the past one year. EBITDA during the third quarter was $392 million, compared to $346 million in the prior-year quarter and EBITDA margin was 45.8%, up 2.6% year over year. This was more than management’s long-run target of 45%. Millicom guided EBITDA margin to remain above 45% during fiscal 2009, a respectable level for telecommunications carriers.
 
At the end of the third quarter, Millicom had approximately $873 million of cash & marketable securities on its balance sheet compared to $1,001.4 million at the end of the prior-year quarter and $832.9 million at the end of the previous quarter. Total debt was approximately $2.36 billion at the end of the same quarter compared to $1.83 billion at the end of the year-ago quarter and $2.28 billion at the end of the previous quarter.
 
Millicom generated $249 million cash from operation during the reported quarter compared to $284.6 million in the prior-year quarter and $236.8 million in the previous quarter. Free cash flow (cash flow from operation less capital expenditure) was $108 million compared to a negative ($43 million) in the year-ago quarter and $80 million in the previous quarter.
 
Millicom is all set to complete the full divestment of its Asian operations by end 2009. Together, the divestiture of three Asian operations will generate approximately $565 million of cash to the company, in line with management expectation of $500 million – $600 million. We maintain our Neutral recommendation for Millicom.

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