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Cincinnati Bell Reports Breakeven, Lags Earnings Estimates

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Telecom services provider Cincinnati Bell Inc. (CBB - Free Report) reported a breakeven in the second quarter of 2014 missing the Zacks Consensus Estimate of earnings of 2 cents. Results also deteriorated substantially from 4 cents earned in the year-ago quarter.

Meanwhile, revenues improved 2.5% year over year to $319.9 million and also surpassed the Zacks Consensus Estimate of $307.0 million.

Adjusted EBITDA (non-GAAP) decreased 4.3% year over year to $99.7 million in the reported quarter. EBITDA margin was 31%, down 200 basis points year over year.

Segment Results

Wireline revenues grew 1.7% year over year to $184.7 million owing to a 42% increase in Entertainment revenues and 6% in Other revenues. The improvement was partially offset by 11% decline in voice revenues and 21% decline in other revenues. Investment in strategic fiber business continues to produce strong wireline revenues for the company.

Total local access lines deteriorated 2.5% from the previous quarter to 505,800 and comprised 255,700 residential and 250,100 business customers.

The company added 6,700 high-speed Internet customers (Fioptics) during the reported quarter, taking its total subscriber base to 270,300 (including 172,000 DSL broadband subscribers).

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. Fioptics entertainment subscribers totaled 98,300 at the end of the second quarter, up from 66,800 in the year-ago quarter.

IT Services and Hardware revenues moved up 18.1% year over year to $101.6 million. The upside was driven by 17% higher revenues in Telecom and IT equipment distribution and 19% revenue growth in Managed and professional services.

Wireless revenues declined 20.3% year over year to $41.2 million due to lower service revenues (down 19%) and equipment revenues (down 31%).

The company exited the second quarter with 276,700 wireless customers, including 163,400 and 113,300 post-paid and prepaid customers, respectively. This compares unfavorably with 370,000 wireless customers in the year-ago quarter and 319,800 in the previous quarter.

CyrusOne Results and Outlook

CyrusOne reported strong second-quarter 2014 revenues of $82 million while adjusted EBITDA stood at $41 million. The company sold 16 million CyrusOne partnership units during the quarter. Moreover, CyrusOne increased its full year 2014 revenue and adjusted EBITDA guidance. The company now expects 2014 revenues in the range of $325–$330 million, up from the previous guidance of $305–$315 million. Adjusted EBITDA is expected in the range of $165–$170 million, up from $160–$165 million.


Cincinnati Bell ended the quarter with cash and cash equivalents of $347.2 million, substantially up from $4.6 million at the end of 2013. Net debt decreased to $1.88 billion from $2.26 billion at the end of 2013.
The company had free cash flow of $18.2 million at the end of the quarter compared with $11.4 million (excluding CyrusOne's free cash flows) at the end of the second quarter of 2013.


For fiscal 2014, Cincinnati Bell lowered its guidance. The company now expects revenues and adjusted EBITDA of approximately $1.0 billion and $333 million (plus or minus 2%), respectively. The revised view is pessimistic compared to the previous revenue and EBITDA guidance of $1.2 billion and $383 million, respectively.

Our Take

Monetization of CyrusOne investments and divestment of wireless spectrum will transform Cincinnati Bell into an entertainment, communication and IT Solution company. Cincinnati Bell’s Wireline segment remains its prime growth driver based on its strong Fioptics business. Taking up of new projects and the spin-off of CyrusOne into a separate entity are expected to work in favor of the company and aid earnings growth in the future.

The company currently carries a Zacks Rank #2 (Buy).

Other Stocks

United States Cellular Corp. (USM - Free Report) , a subsidiary of Telephone and Data Systems Inc. (TDS - Free Report) , reported second-quarter 2014 loss per share of 22 cents, wider than the Zacks Consensus Estimate of a loss of 15 cents.

On the other hand, Frontier Communications Corporation (FTR - Free Report) reported its second-quarter 2014 adjusted earnings per share of 5 cents, in line with the Zacks Consensus Estimate.

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