American Tower Outperforms

American Tower Corp. (AMT - Analyst Report) announced excellent financial results for the fourth quarter of 2011, easily surpassing the Zacks Consensus Estimates. Moreover, all three reporting segments of the company generated year-over-year sales growth.

On a GAAP basis, net income in the fourth quarter of 2011 was $201.3 million or 51 cents per share compared with a net income of $83.5 million or 21 cents per share in the prior-year quarter. Fourth quarter 2011 EPS of 51 cents was significantly above the Zacks Consensus Estimate of 31 cents. Quarterly total revenue was $653.2 million, up 19.3% year over year surpassing the Zacks Consensus Estimate of $651 million.

Adjusted EBITDA in the fourth quarter of 2011 was $428.6 million, up 17.3% year over year. Adjusted EBITDA margin was 66% compared with 67% in the prior-year quarter.

Gross margin in the reported quarter was 74.7% compared with 75.7% in the year-ago quarter. Selling, general & administrative expense was $73.9 million compared with $65.4 million in the year-ago quarter. Quarterly operating income was $247.7 million, up 21.8% year over year. During the fourth quarter, American Tower repurchased 0.6 million shares of its Class A common stock for a total consideration of $30.8 million.

In 2011, American Tower generated around $1,166 million in cash from operations compared with $1,021 million in 2010. Recurring free cash flow in 2011 was $989.2 million compared with $918.7 million in 2010. In 2011, recurring free cash flow per share climbed 8.8% year over year to $2.47.

Pro forma adjusted funds from operations (AFFO) in 2011 was $400.2 million compared with $404.1 million in 2010. Pro forma AFFO per share in 2011 was $2.67, up 13.1% year over year.

At the end of 2011, the company had $330.2 million in cash & cash equivalents and around $7,236.3 million in outstanding debt on its balance sheet compared with $883.9 million in cash & cash equivalents and $5,512.5 million in outstanding debt at the end of 2010. At the end of 2011, debt-to-capitalization ratio was 0.68 compared with 0.61 at the end of 2010.

Domestic Rental and Management Segment

Quarterly revenue was $464.9 million, up 10.6% year over year. Gross margin came in at 80.3% compared with 79.8% in the year-ago quarter.Quarterly operating profit was $352.8 million, up 11.9% year over year.

International Rental and Management Segment

Quarterly revenue was $175.9 million, up 52% year over year. Gross margin for the segment was 64.6% compared with 67.5% in the year-ago quarter.Quarterly operating profit was $92.1 million, up 43.4% year over year.

Network Development Services Segment

Quarterly revenue was $12.3 million, up 8.1% year over year. Gross margin was 39.2% compared with 39.4% in the year-ago quarter. Quarterly operating profit was $2.1 million, down 21.8% year over year.

Tower Count

On December 31, 2011, AmericanTowermanaged 45,478 communications towers, of which 44,741 are for Wireless network, 473 for Broadcasting and the remaining 264 for DAS (Distributed Antenna System). Geographically, the company operates 21,043 wireless towers, 274 broadcast towers and 258 DAS in the United States and 23,698 wireless towers, 199 broadcast towers and 6 DAS outside the U.S.

Future Financial Outlook by Management

For 2012, total revenue from the Rental & Management segment is expected to range from $2,670 million - $2,710 million. Adjusted EBITDA is anticipated in the $1,745 million - $1,785 million range. AFFO is estimated around $1,158 million - $1,173 million. Net income is estimated around $660 million - $680 million. Capital expenditure is expected in the band of $500 million - $600 million.

Recommendation

We believe the wireless tower industry will continue to perform extremely well, primarily on the back of huge demand for mobile data and video services. However, stiff competition from Crown Castle International Corp. (CCI - Analyst Report) coupled with higher operating expenses and huge debt may act as headwinds for the stock going forward.

We maintain our long-term Neutral recommendation on American Tower. Currently, it holds a short-term Zacks #2 Rank (Buy) on the stock.