United States Cellular Corp. (USM - Free Report) -- a subsidiary of Telephone & Data Systems Inc. (TDS - Free Report) -- posted mixed financial results in the third quarter of 2016. While the top line surpassed the Zacks Consensus Estimate, the bottom line missed the same.
In third-quarter 2016, GAAP net income came in at $17 million compared with a net income of $64 million in the year-ago quarter. Quarterly earnings per share of 20 cents lagged the Zacks Consensus Estimate of 23 cents.
Quarterly revenues of $1,010 million were down 5.5% year over year but managed to beat the Zacks Consensus Estimate of $985 million. Quarterly Service revenues decreased 14% to $771 million. Revenues from Equipment sales were up a substantial 38% to $239 million.
Smartphone sales retained its strength and represented 78% penetration among postpaid customers, up from 74% recorded at the end of 2015. Total cell sites in service were 6,374 compared with 6,297 at the end of 2015. Smartphones sold, as a percentage of total handsets sold, constituted 92% against 91% at 2015-end.
Operating Expenses and Income
In the third quarter of 2016, total operating expenses inched up 1% to $1,001 million. Moreover, the company reported an operating income of $9 million, down a whopping 88% year over year.
In the quarter under review, cash from operations came in at $155 million compared with $131 million in the prior-year quarter. Quarterly adjusted free cash flow was $55 million compared with a loss of $12 million in the year-ago quarter.
U.S. Cellular exited the third quarter with cash and cash equivalents of $674 million compared with $715 million at the end of 2015. At third-quarter end, total debt was $1,621 million versus $1,629 million at the end of 2015. The debt-to-capitalization ratio at the end of the reported quarter was 0.23, flat with the 2015-end figure.
ARPU & Churn
Quarterly postpaid ARPU (average revenue per user) decreased to $47.08 from $51.46 in the end of 2015. Postpaid ARPA (average revenue per account) was $125.31 versus $131.96 at the end of 2015. Postpaid churn rose to 1.34% from 1.31% recorded at the end of 2015. Prepaid ARPU decreased to $34.39 from $35.54 recorded at the end of 2015. Prepaid churn decreased to 4.84% in the reported quarter from 5.40% at 2015-end.
U.S. Cellular exited the third quarter with a subscriber base of 5,030,000 compared with 4,876,000 at the end of 2015. Postpaid subscriber base totaled 4,484,000 compared with 4,409,000 at 2015-end. Meanwhile, prepaid subscriber base totaled 480,000 compared with 387,000 at the end of 2015. In the reported quarter, United States Cellular lost a net of 6,000 postpaid subscribers compared with the addition of 68,000 at the end of 2015. The company gained 67,000 prepaid customers in the same quarter compared with 7,000 at 2015-end.
U.S. Cellular reaffirmed its guidance for 2016. The company expects total operating revenue in the band of $3,900–$4,100 million. Adjusted EBITDA is projected at $725–$850 million while capital expenditure is estimated at around $500 million. The company projects operating cash flow in the range of $525--$650 million while capital expenditure is projected at around $500 million.
Zacks Rank and Stocks to Consider
U.S. Cellular has a Zacks Rank #3 (Hold). Here are some companies that have the right combination of elements to post an earnings beat this quarter.
Verizon Communications Inc. (VZ - Free Report) , with an Earnings ESP of +1.11% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The company’s earnings beat the Zacks Consensus Estimate in three of the previous four quarters.
Microsoft Corporation (MSFT - Free Report) , with an Earnings ESP of +1.30% and a Zacks Rank #3.The company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters.
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