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Crown Castle International Inc. declared excellent first quarter 2011 results, which handily beat the Zacks Consensus Estimate. These fabulous results were primarily driven by higher revenue, higher adjusted EBITDA and massive increase in recurring cash flow.

In the after-market trading in NYSE, stock price of Crown Castle was down 26 cents (0.59%) to $44.19.

Net profit

Quarterly GAAP net income was approximately $40 million or 12 cents per share compared with a net loss of $119 million or 43 cents in the year-ago quarter. First quarter 2011 EPS of 13 cents were significantly ahead of the Zacks Consensus Estimate of 8 cents.

Revenue

Net revenue in the quarter was $499 million, up 12% year over year and exceeded the Zacks Consensus Estimate of $484 million. This was mainly due to improved performance by both Site Rental and Network Services segments.

Margins

Gross margin was 70.8% compared with 68.5% in the year-ago quarter. Operating income, in the reported quarter, was $166.4 million compared with $130.4 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $319 million, up 16% year over year. Recurring cash flow (adjusted EBITDA excluding interest expense and sustaining capital expenditure) in the first quarter of 2011 was roughly $190 million, up 27% year over year.

Cash Flow

During the first quarter of 2011, Crown Castle generated $127.5 million of cash from operations versus $571.3 million in the prior-year quarter. Free cash flow (cash flow from operation less capital expenditure) during the first quarter of 2011 was $74.8 million versus $47.4 million in the prior-year quarter.

Balance Sheet

During the first quarter of 2011, Crown Castle had nearly $82.3 million of cash & marketable securities on its balance sheet compared with $112.5 million in the year-ago quarter. Total debt was approximately $6,702.8 million in the reported quarter versus $6,750.2 million in the year-ago quarter. At the end of the first quarter of 2011, debt-to-capitalization ratio was 0.73, in line with the prior-year quarter.

Share Repurchase

During the first quarter of 2011, Crown Castle repurchased 1.0 million common shares worth $42.2 million at an average price of $41.14.

Site Rental Segment

Quarterly revenue was $456.2 million, up 12% year over year. Gross margin (site rental revenue excluding site rental cost of operations) of this segment was 74.0% compared with 72.0% in the prior-year quarter.

Network Services Segment

Quarterly revenue was $42.8 million, up 14.1% year over year. Gross margin of this segment was 36.4% compared with 29.9% in the prior-year quarter.

Management Outlook for the Second Quarter of 2011

Management projected site rental revenue for the second quarter 2011 in the $450 million to $455 million range. Site rental cost of operation is expected to be in the band of $118 million to $123 million. Adjusted EBITDA is forecasted in the $311 million to $316 million range. Interest expense is guided in the range of $124 million to $129 million with capital expenditure between $5 million and $7 million and recurring cash flow in the range of $178 million to $183 million. Net income, on a GAAP basis, excluding dividend on preferred stocks, is expected in the range of $11 million to $40 million or 4 cents to 14 cents per share.

Management Outlook for Fiscal 2011

For fiscal 2011, Crown Castle expects site rental revenue in the range of $1,815 million to $1,835 million. Site rental cost of operation is projected in the $470 million to $490 million range. Adjusted EBITDA is anticipated between $1,248 million and $1,268 million. Interest expense is estimated to be in the $499 million to $509 million range with sustaining capital expenditure in the range of $20 million to $25 million and recurring cash flow between $721 million and $741 million. Net income, on a GAAP basis, after deducting dividend on preferred stocks, is expected in the range of $70 million to $155 million or 24 cents to 54 cents per share.

Recommendation

Increasing deployments of 3G/4G high speed mobile voice, data, and video technology and significant growth of smartphones will act as tailwinds for the company going forward. However, huge debts and stiff competitions from American Tower Corp. and SBA Communications will act as negative catalysts for the stock.

We, thus, maintain our long-term Neutral recommendation for Crown Castle. Currently, Crown Castle has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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