United States Cellular Corp. ( USM - Analyst Report ) , a subsidiary of Telephone and Data Systems Inc. ( TDS - Analyst Report ) has reported fourth quarter 2011 earnings per share of 3 cents, missing the Zacks Consensus Estimate of 23 cents. Earnings also plunged 66.7% from 9 cents in the year-ago period due to $6.1 million tax adjustments that increased tax-related expenses for the quarter.

Net income attributable to shareholders also decreased 64.1% year over year to $2.8 million in the reported quarter.

For the full year, earnings per share rose 31% year over year to $2.05 and net income attributable to shareholders were up 29% year over year at $175.0 million.

Fourth quarter revenues of $1,099.4 million missed the Zacks Consensus Estimate of $1,103.0 million but increased 3.4% from $1,063.2 million in the year-ago quarter driven by strong smartphone sales. Revenues for the full year increased 4% year over year to $4,343.3 million.

Revenue, ARPU & Churn

Quarterly Service revenue upped 4% year over year to $1,030.0 million. Revenues from Equipment sales were down 2% year over year to $69.6 million primarily due to lower total equipment transactions, although smartphone sales remain strong and represented approximately 52.5% of all sold devices versus 39.6% in the year-ago quarter.

Service revenue in the full year was $4,053.8 million, up 4% year over year and Equipment sales increased 9% year over year to $289.5 million.

The reported quarter’s retail service ARPU (average revenue per user) was $49.78 compared with $47.41 in the year-ago quarter given higher inbound roaming revenues as well as smartphone sales that drove the increases in data revenues. Post-paid churn deteriorated to 1.6% from 1.5% in the year-ago quarter due to competitive pricing.

Subscriber Statistics

U.S. Cellular marked a better quarter compared to a year ago as net subscriber loss from retail customers of 13,000 showed a considerable improvement from 21,000 net loss in the year-ago quarter. However, the total subscriber base went down to 5.89 million from 6.07 million in the year-ago period.

The company exited the quarter with a retail customer base of 5.60 million compared to 5.69 million in year-ago quarter. There were approximately 3.1 million customers under its Belief plans.

Liquidity

U.S. Cellular generated $987.9 million in cash flow from operating activities in the fourth quarter of 2011 compared with $834.4 million in the year-ago quarter and had $276.4 million in capital expenditures as against $203.4 million in the comparable prior-year period. The company incurred negative free cash flow of $60.4 million versus $78.5 million in the year-ago quarter.

The company exited the fourth quarter with $424 million in cash and cash equivalents compared with $276 million in the year-ago quarter.

Guidance

For fiscal 2012, U.S. Cellular expects revenue in the range of $4,050–$4,150 million and operating income in the range of $200–$300 million. Adjusted OIBDA is estimated in the range of $800–$900 million. The company’s capital expenditure is expected to be approximately $850 million.

Our Analysis

Despite the negative impacts of unfavorable tax adjustments, U.S. Cellular managed to benefit from the growing demand for smartphones that is driving growth in data services along with the increased market penetration of its Belief plan.

Additionally, the company’s increased investments in advanced network technology deployment along with its expected foray into Long-Term Evolution (LTE) services this year are also expected to help despite several integration problems, intense competition from telecom giants like AT&T ( T - Analyst Report ) and Verizon Communications ( VZ - Analyst Report ) , pricing, regulatory pressures pertaining to Universal Service Fund and economic uncertainty.

Consequently, we recommend a long-term Neutral rating on U.S. Cellular supported by a Zacks #3 Rank.

United States Cellular Corp. ( USM - Analyst Report ) , a subsidiary of Telephone and Data Systems Inc. ( TDS - Analyst Report ) has reported fourth quarter 2011 earnings per share of 3 cents, missing the Zacks Consensus Estimate of 23 cents. Earnings also plunged 66.7% from 9 cents in the year-ago period due to $6.1 million tax adjustments that increased tax-related expenses for the quarter.

Net income attributable to shareholders also decreased 64.1% year over year to $2.8 million in the reported quarter.

For the full year, earnings per share rose 31% year over year to $2.05 and net income attributable to shareholders were up 29% year over year at $175.0 million.

Fourth quarter revenues of $1,099.4 million missed the Zacks Consensus Estimate of $1,103.0 million but increased 3.4% from $1,063.2 million in the year-ago quarter driven by strong smartphone sales. Revenues for the full year increased 4% year over year to $4,343.3 million.

Revenue, ARPU & Churn

Quarterly Service revenue upped 4% year over year to $1,030.0 million. Revenues from Equipment sales were down 2% year over year to $69.6 million primarily due to lower total equipment transactions, although smartphone sales remain strong and represented approximately 52.5% of all sold devices versus 39.6% in the year-ago quarter.

Service revenue in the full year was $4,053.8 million, up 4% year over year and Equipment sales increased 9% year over year to $289.5 million.

The reported quarter’s retail service ARPU (average revenue per user) was $49.78 compared with $47.41 in the year-ago quarter given higher inbound roaming revenues as well as smartphone sales that drove the increases in data revenues. Post-paid churn deteriorated to 1.6% from 1.5% in the year-ago quarter due to competitive pricing.

Subscriber Statistics

U.S. Cellular marked a better quarter compared to a year ago as net subscriber loss from retail customers of 13,000 showed a considerable improvement from 21,000 net loss in the year-ago quarter. However, the total subscriber base went down to 5.89 million from 6.07 million in the year-ago period. The company exited the quarter with a retail customer base of 5.60 million compared to 5.69 million in year-ago quarter. There were approximately 3.1 million customers under its Belief plans.

Liquidity

U.S. Cellular generated $987.9 million in cash flow from operating activities in the fourth quarter of 2011 compared with $834.4 million in the year-ago quarter and had $276.4 million in capital expenditures as against $203.4 million in the comparable prior-year period. The company incurred negative free cash flow of $60.4 million versus $78.5 million in the year-ago quarter.

The company exited the fourth quarter with $424 million in cash and cash equivalents compared with $276 million in the year-ago quarter.

Guidance

For fiscal 2012, U.S. Cellular expects revenue in the range of $4,050–$4,150 million and operating income in the range of $200–$300 million. Adjusted OIBDA is estimated in the range of $800–$900 million. The company’s capital expenditure is expected to be approximately $850 million.

Our Analysis

Despite the negative impacts of unfavorable tax adjustments, U.S. Cellular managed to benefit from the growing demand for smartphones that is driving growth in data services along with the increased market penetration of its Belief plan. Additionally, the company’s increased investments in advanced network technology deployment along with its expected foray into Long-Term Evolution (LTE) services this year are also expected to help despite several integration problems, intense competition from telecom giants like AT&T ( T - Analyst Report ) and Verizon Communications ( VZ - Analyst Report ) , pricing, regulatory pressures pertaining to Universal Service Fund and economic uncertainty.

Consequently, we recommend a long-term Neutral rating on U.S. Cellular supported by a Zacks #3 (Hold) Rank.