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American Tower Corp. (AMT - Analyst Report) reported its second-quarter 2012 financial results. Both the top and the bottom line fell short of the Zacks Consensus Estimate.

On a GAAP basis, net income in the reported quarter, was $48.2 million or 12 cents per share compared with a net income of $115.2 million or 29 cents per share in the prior-year quarter.

First-quarter 2012 earnings per share of 12 cents were significantly below the Zacks Consensus Estimate of 41 cents. Quarterly total revenue was $697.7 million, up 16.8% year over year, surpassing the Zacks Consensus Estimate of $698 million.

Adjusted EBITDA in the second quarter of 2012 was $465.6 million, representing an annualized growth of 19.7%. Adjusted EBITDA margin was 67% compared with 65% in the prior-year quarter.

Gross margin in the reported quarter was 75.3% compared with 74.7% in the year-ago quarter. Selling, general & administrative expense was $76.8 million compared with $72.3 million in the year-ago quarter. Quarterly operating income was $270.5 million, up 19.8% year over year.

In the previous quarter, American Tower repurchased 0.1 million shares of its Class A common stock for a total consideration of $27.2 million.

At the end of the first half of fiscal 2012, American Tower generated around $762.9 million of cash from operations against $559.3 million in the first half of fiscal 2011. Proforma adjusted funds from operations (AFFO) in the reported quarter was $300.5 million, up 14.3% in the year-ago quarter. Quarterly proforma AFFO per share was $0.75, up 13.6% year over year.

At the end of the second quarter of 2012, the company had $481.9 million in cash & marketable securities and around $7,337.6 million in outstanding debt on its balance sheet compared with $330.2 million in cash & marketable securities and $7,134.5 million in outstanding debt at the end of 2011. At the end of the reported quarter, debt-to-capitalization ratio was 0.68 compared with 0.67 at the end of 2011.

Domestic Rental and Management Segment

Quarterly revenue was $473.4 million, up 11.4% year over year. Gross margin came in at 81.4% compared with 79.4% in the year-ago quarter. Operating margin was 77% compared with 75% in the year-ago quarter.

International Rental and Management Segment

Quarterly revenue stood at $208.9 million, showing a 31.5% year-over-year surge. Gross margin for the segment was 65% compared with 66.6% in the year-ago quarter. Operating margin was 56% compared with 53% in the year-ago quarter.

Network Development Services Segment

Quarterly revenue was $15.5 million, up 15.7% year over year. Gross margin was 54.2% compared with 49.3% in the year-ago quarter. Operating margin was 42% compared with 38% in the year-ago quarter.

Tower Count

On June 30, 2012, American Tower managed 49,203 communications towers, of which 48,730 are for Wireless network and 473 for Broadcasting. Geographically, the company operates 21,318 wireless towers and 274 broadcast towers in the U.S. along with 27,412 wireless towers and 199 broadcast towers outside the U.S.

Future Financial Outlook by Management

For 2012, total revenue from the Rental & Management segment is expected to range from $2,745 million to $2,795 million. Adjusted EBITDA is anticipated in the band of $1,810 million-$1,850 million. AFFO is estimated around $1,185 million-$1,207 million.

Net income is estimated around $535 million-$555 million. Capital expenditure is expected in the band of $500 million-$600 million, while Adjusted Fund From Operation (AFFO) is expected to be in the range of $1,185-$1,207 million.


American Tower is expected to benefit from the surge in wireless voice, broadband, data and video networks, which require more tower space. Rapid expansion in emerging markets like Brazil and India will provide long-term sustainable business opportunities for the company.

American Tower has a huge debt, which may hinder the company’s effort to access the debt market at favorable rates in order to borrow and refinance its expansion plans. Recent development of satellite-delivered radio and video services may reduce the need for tower-based broadcast transmission.

Moreover, competition from other peers like Crown Castle International Corp. (CCI - Analyst Report) and SBA Communications Corp. (SBAC - Snapshot Report) will act as negative catalysts for the stock. We thus maintain our long-term Neutral recommendation for AMT.

The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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