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T-Mobile (TMUS) Q2 Earnings Beat, Revenues Miss Estimates

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T-Mobile US, Inc. (TMUS - Free Report) reported healthy financial results in the second quarter of 2018, driven by record-high service revenues and profitability.

Net Income

Net income for the reported quarter came in at $782 million or 92 cents per share compared with $567 million or 67 cents per share in the year-ago quarter. The healthy year-over-year increase was attributable to the positive impacts of the adoption of the new revenue standard and hurricane-related reimbursements. The bottom line beat the Zacks Consensus Estimate by 6 cents.

T-Mobile US, Inc. Price, Consensus and EPS Surprise

Revenues

Quarterly total revenues increased 3.5% year over year to $10,571 million, primarily driven by growth in service revenues, partly offset by lower equipment revenues. The top line missed the Zacks Consensus Estimate of $10,636 million.

Segmental Performance

Total Service revenues were up 6.5% year over year for a record high of $7,931 million, which marked the 17th consecutive quarter of leading the industry in a year-over-year service revenue percentage growth.

Within the Service segment, branded postpaid revenues were $5,164 million, increasing 7.1% year over year. Branded postpaid phone average revenue per user (ARPU) was $46.5, down 1.2% from the prior-year quarter, primarily due to the continued adoption of tax inclusive plans, a decrease in the non-cash net benefit from Data Stash, partly offset by the positive impact from T-Mobile ONE rate plans and a net reduction in service promotional activities. Branded prepaid revenues were $2,402 million, up 2.9% year over year. Branded prepaid ARPU was $38.5, down 0.4% from the prior-year quarter, primarily due to promotional activities. Wholesale revenues were $275 million, up 17.5% year over year, while roaming and other service revenues were $90 million, up 57.9%.

Revenues from Equipment totaled $2,325 million, down 7.2% year over year. Other revenues were $315 million, up 20.2%.

Operating Metrics

Quarterly total operating expenses were $9,121 million compared with $8,797 million in the year-ago quarter. Operating income was $1,450 million compared with $1,416 million in the year-ago quarter. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $3,233 million, up 7.3% year over year.

Cash Flow & Liquidity

For the first six months of 2018, T-Mobile generated $2,031 million of cash from operations compared with $1,714 million in the year-ago period. Free cash flow for the first half of the year was $1,442 million compared with $667 million in the year-ago period.

As of Jun 30, 2018, the company had $215 million of cash and cash equivalents with long-term debt of $12,065 million.

Outlook

For 2018, T-Mobile increased its expectation of postpaid net customer additions to 3-3.6 million, up from the previous target range of 2.6-3.3 million. Adjusted EBITDA is expected between $11.5 billion and $11.9 billion, up from the previous target range of $11.4-$11.8 billion, which includes leasing revenues of $0.6-$0.7 billion.

Cash purchases of property and equipment, excluding capitalized interest, are expected at the higher end of $4.9 billion and $5.3 billion range, unchanged from the previous guidance. This includes expenditures for 5G deployment.

The three-year (2016-2019) compound annual growth rate guidance for net cash provided by operating activities and free cash flow remains unchanged at 7-12% and 46-48%, respectively.

Zacks Rank & Stocks to Consider

T-Mobile currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include AT&T Inc. (T - Free Report) , Aquantia Corp. (AQ - Free Report) and Windstream Holdings, Inc. (WIN - Free Report) . While AT&T sports a Zacks Rank #1 (Strong Buy), Aquantia and Windstream carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AT&T has a long-term earnings growth expectation of 3.4%. It surpassed earnings estimates twice in the trailing four quarters with an average positive surprise of 5.9%.          

Aquantia surpassed earnings estimates once in the trailing four quarters with an average positive surprise of 50%.          

Windstream surpassed earnings estimates twice in the trailing four quarters with an average positive surprise of 23.9%.          

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