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Crown Castle International Inc. (CCI - Analyst Report) declared solid second quarter of 2012 financial results, beating the Zacks Consensus Estimates. The company also raised its fiscal 2012 financial guidance mainly based on the acquisition of Wireless Capital Partners and NextG Networks.

Net profit

Quarterly GAAP net income was approximately $116 million or 40 cents per share compared with a net income of $25.7 million or 9 cents per share in the year-ago quarter. Second-quarter 2012 earnings per share of 40 cents surpassed the Zacks Consensus Estimate by a penny.

Revenue

Net revenue in the second quarter was $585.5 million, up 17% year over year, easily beating the Zacks Consensus Estimate of $561 million. This was mainly due to improved performance by the Site Rental segment.

Margins

Gross margin in the second quarter was 70.7% compared with 70.6% in the year-ago quarter. Operating income was $203 million compared with $167.1 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $378.5 million, up 18% year over year.

Cash Flow

During the second quarter of fiscal 2012, funds flow from operation (FFO) was $195.3 million compared with $168.8 million in the prior-year quarter. FFO per share in the reported quarter was 67 cents compared with 59 cents in the year-ago quarter. Quarterly adjusted funds flow from operation (AFFO) was $214.8 million compared with $179.8 million in the previous quarter. AFFO per share in the reported quarter was 74 cents compared with 63 cents in the year-ago quarter.

Balance Sheet

At the end of second quarter of fiscal 2012, Crown Castle had cash & marketable securities of approximately $96.2 million on its balance sheet compared with $80.1 million at the end of fiscal 2011. Total debt was approximately $8,434.1 million at the end of the reported quarter versus $6,853.2 million at the end of fiscal 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.74 versus 0.74 at the end of fiscal 2011.

Site Rental Segment

Quarterly revenue was $517.6 million, up 13.2% year over year. Gross margin for the segment was 74.6% compared with 73.5% in the prior-year quarter.

Network Services Segment

Quarterly revenue was $67.9 million, up 57.1% year over year. Gross margin for the segment was 40.7% compared with 40.1% in the prior-year quarter.

Management Outlook for the Third Quarter of Fiscal 2012

CrownCastleexpects site rental revenue in the range of $530 million to $535 million. Site rental cost of operation is projected in the $130 million to $135 million range. Adjusted EBITDA is anticipated between $387 million and $392 million. Site rental gross margin is anticipated to be between $397 to $402. Interest expense (inclusive of amortization) is estimated in the $143 million to $147 million range. FFO is estimated in the range of $191 million to $231 million. AFFO is estimated in the $211 million to $216 million range. Net income is expected in the range of $17 million to $51 million or 6 cents to 18 cents per share.

Management Outlook for Fiscal 2012

CrownCastleexpects site rental revenue to be in the range of $2,083 million to $2,093 million. Site rental cost of operation is projected in the $514 million to $524 million range. Site rental gross margin is expected between $1,561 to 1,571 million.  Adjusted EBITDA is anticipated between $1,518 million and $1,528 million. Interest expense (inclusive of amortization) is estimated in the $568 million to $578 million range. FFO is estimated in the range of $772 million to $862 million. AFFO is estimated in the $847 million to $857 million range. Net income is expected to be between $206 million and $281 million or 71 cents to 96 cents per share.

Recommendation

We believe that strong financial outlook, continuous acquisition and huge demand for network due to increased usage of smartphones will act as tailwinds for the company going forward despite competition from American Tower Corp. (AMT - Analyst Report) and SBA Communications Corp. (SBAC - Snapshot Report).We, thus, maintain our long-term Outperform recommendation onCrown Castle. Currently, CrownCastlecarries a Zacks#1 Rank, implying a short-term Strong Buy rating.

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