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Telephone & Data Systems (TDS) Misses on Earnings in Q3

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Telephone & Data Systems Inc. (TDS - Free Report) reported weak financial results in the third quarter of 2016, wherein both the top and the bottom line lagged the Zacks Consensus Estimate.

GAAP net income in the third quarter of 2016 was $13 million compared with $51 million in the year-ago quarter. Quarterly adjusted earnings per share of 11 cents lagged the Zacks Consensus Estimate of 13 cents.

 

Revenues were down 5.3% year over year to $1,301 million in the reported quarter, below the Zacks Consensus Estimate of $1,307 million. Operating expenses were $1,281 million, flat year over year. The company reported quarterly operating income of $20 million compared with $93 million in the year-ago quarter.

U.S.Cellular Division

The company’s wireless subsidiary United States Cellular Corp. (USM - Free Report) reported third-quarter 2016 earnings per share of 20 cents, below the Zacks Consensus Estimate of 23 cents.

Quarterly revenues of $1,010 million were down 5.5% year over year and ahead of 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% versus 91% at the end of 2015.

United States 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 was 4,484,000 compared with 4,409,000 at the end of 2015. 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 2015-end. The company gained 67,000 prepaid customers in the same quarter compared with 7,000 at the end of 2015.

TDS Division

In the reported quarter, total revenue came in at $287 million, down 4% year over year. Within the segment, revenues from the wireline segment came in at $175 million, flat year over year. Cable revenues were $46 million, up 5% year over year while HMS revenues decreased 17% to $68 million.

Subscriber Statistics

As of Sep 30, 2016, Telephone & Data Systems had 590,900 residential wireline connections, compared with 587,800 in the year-ago quarter. Of the total, voice connections were 314,600, down 3.5%. Broadband Connections were 232,800, up 0.52%. IPTV connections were 43,600, up a substantial 43.89%. Quarterly total residential revenue per connection was $44.25 compared with $42.83 in the year-ago quarter.

The company exited the reported quarter with 334,000 commercial wireline connections, down 3.4% year over year. Of the total, voice connections were 160,900, down 8.9%. Broadband Connections were 21,700, down 5.7%. ManagedIP connections were 151,500, up 3.8%.

Total cable connections were 291,000, up 5.1% year over year. Of the total, Video connections were 101,100, down 6.6%. Broadband Connections were 130,200, up 13.6%. Voice connections were 59,800, up 10.7%.

Cash Flow

In third-quarter 2016, Telephone & Data Systems generated $238 million of cash from operations compared with $188 million in the prior-year quarter. Quarterly adjusted free cash flow was $95 million against a negative $7 million in the year-earlier quarter. 

Liquidity

Telephone & Data Systems exited the third quarter with cash and cash equivalents of $985 million, flat with the end-2015 figure. At third-quarter end, total debt was $2,436 million versus $2,440 million at 2015-end. At the end of the third quarter, the debt-to-capitalization ratio stood at 0.26, flat with the end-2015 figure.

TELEPHONE &DATA Price, Consensus and EPS Surprise

 

TELEPHONE &DATA Price, Consensus and EPS Surprise | TELEPHONE &DATA Quote

Guidance

For full-year 2016, Telephone & Data Systems projects total operating revenue in the range of $1,130–$1,180 million. Both operating cash flow and adjusted EBITDA are estimated in the band of $270–$310 million while capital expenditure is projected at around $180 million.

Zacks Rank and Stocks to Consider

Telephone and Data Systems 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 trailing 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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