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Telecom services provider Cincinnati Bell Inc. ( CBB - Analyst Report ) has reported fourth quarter and fiscal 2011 results. Adjusted earnings of 3 cents per share in the fourth quarter missed the Zacks Consensus Estimate by 4 cents but was level with the year-ago earnings.
Fiscal 2011 earnings plunged to 24 cents per share from 31 cents in the prior year.
Revenue inched up 1% year over year to $365.3 million in the reported quarter but was below the Zacks Consensus Estimate of $370 million. The year-over-year improvement was driven by growth in Data Center Colocation. The rest of the segment recorded declines in revenues.
In fiscal 2011, revenue increased 6% year over year to $1.46 billion exceeding the company’s guidance of $1.4 billion. Adjusted EBITDA grew 4% and 5% year over year to $131.9 million and $544.7 million in the fourth quarter and full year, respectively.
Cincinnati Bell generated the highest annual revenue and adjusted EBITDA since 2003.
Wireline revenue dipped 1% year over year to $180.3 million in the reported quarter. Lower voice revenue (down 4%) was partially compensated by higher revenues from entertainment (up 3%) and data revenue (up 1%). Long-distance and VoIP revenue was flat year over year.
Total local access lines declined 7.8% year over year to 621,300 at the end of 2011, and comprised 552,400 in-territory lines and 68,900 out-of-territory lines.
The company lost 1,400 high-speed Internet customers (including Fioptics and DSL) during the reported quarter, bringing the total subscriber base to 257,300 (including DSL broadband subscribers of 218,000).
Cincinnati Bell continues to expand the availability of its Fioptics fiber-to-the-home product suite, which provides entertainment, high-speed Internet and voice services. Wireline added 2,000 Fioptics entertainment subscribers to reach 40,000 customers at the end of fiscal 2011.
Wireless revenues fell 2% year over year to $68.4 million due to lower service revenue (down 6%), partially compensated by higher equipment revenue (up 57%).
The company exited 2011 with 459,000 wireless customers, including 311,000 and 148,000 post-paid and prepaid customers, respectively. This compares unfavorably with 509,000 wireless customers last year. Post-paid churn improved slightly to 2.2% at the end of 2011 from 2.1% last year while prepaid churn deteriorated to 6.5% from 6.2%. Post-paid average revenue per user (ARPU) was $50.32 and prepaid ARPU was $28.58 in the fourth quarter.
Revenues from Data Center Colocation climbed 21% year over year to $49.1 million aided by the acquisition of CyrusOne.
Data center utilization remained high at 88% on 763,000 square feet of data center space in full 2011 as opposed to 88% on 639,000 square feet in 2010.
IT Services and Hardware revenues dropped 3% year over year to $75.6 million. Revenues from Managed and Professional services increased 14% and 22%, respectively, while Telecom and IT equipment distribution revenues decreased 11%.
Cincinnati Bell ended 2011 with cash and cash equivalents of $73.7 million, down from $77.3 million in 2010. Net debt increased to $2.46 billion from $2.44 billion in the prior year.
The company incurred negative free cash flow of $15.8 million in the reported quarter compared with $44.8 million in the year-ago quarter. In fiscal 2011, free cash flow decreased to $10.5 million from $148.8 million last year.
For fiscal 2012, Cincinnati Bell expects revenue and adjusted EBITDA of approximately $1.5 billion and $530 million, respectively.
Although Cincinnati Bell has strong long-term prospects driven by its 3G and 4G wireless services, increased handset offerings as well as expansion of data center business and Fioptics products, we are wary of a debt-loaded balance sheet that may impede the ongoing wireless and broadband expansion, and build-out of additional data center space.
In addition, persistent erosion in local access lines and intense competition from Tier-1 competitors such as AT&T Inc. ( T - Analyst Report ) and Verizon Communications ( VZ - Analyst Report ) poses major risks to the stock.
We currently have a long-term Underperform recommendation on Cincinnati Bell. The stock retains a Zacks #4 (Sell) Rank for the short term.
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