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Why Is Cincinnati Bell (CBB) Down 11.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Cincinnati Bell (CBB - Free Report) . Shares have lost about 11.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cincinnati Bell due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cincinnati Bell Reports Narrower-Than-Expected Loss in Q3

Cincinnati Bell reported relatively sedate third-quarter 2018 results. On a GAAP basis, quarterly net loss came in at $20.3 million or loss of 41 cents per share compared with net loss of $13.6 million or loss of 32 cents per share in the year-ago quarter. The deterioration in the bottom line despite top-line growth was primarily due to higher operating expenses and increased interest costs related to the financing of the merger with Hawaiian Telcom.  Quarterly adjusted (excluding special items) loss per share was 16 cents, narrower than the Zacks Consensus Estimate of loss of 17 cents.

Quarterly total revenues of $386.7 million were up 51% year over year driven by continued solid demand of fiber-based products as well as inorganic growth. However, the figure lagged the Zacks Consensus Estimate of $390 million. Operating income was $14.5 million compared with $15.9 million in the year-ago quarter. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased $29 million year over year to $105 million in the reported quarter.

Segmental Results

Entertainment and Communications revenues improved 45% year over year to $253.4 million, primarily due to higher revenues from fiber businesses. Cincinnati Bell’s merger with Hawaiian Telcom has significantly expanded its high-quality metro fiber asset portfolio to meet the accelerating need for increased bandwidth and support the growing demand for IoT ecosystems.

IT Services and Hardware revenues increased 62% year over year to $141.1 million due to contributions from OnX and Hawaiian Telcom. The expansion of the company's geographic footprint in IT services has brought enhanced scale and client diversification, supporting its transformation to a hybrid IT solutions provider.

Balance Sheet & Cash Flow

Total cash provided by operating activities was $123 million for the first nine months of 2018 compared with $157 million in the prior-year period. Cincinnati Bell exited the quarter with total cash and cash equivalents of $10.6 million with total long-term debt (less current portion) of $1,909.4 million.

Notable Developments

The company has well integrated the Hawaiian Telcom Holdco, Inc., which it acquired in July. The merger takes Cincinnati Bell a step forward toward expanding its portfolio of next-generation fiber offerings and securing fiber density value for customers and shareholders. It positions the company at the forefront of innovation in telecommunications and establishes a platform for future growth.

Outlook

Cincinnati Bell has reitearted its earlier guidance for 2018, reflecting expected contributions from Hawaiian Telcom in the second half of the year. Notably, the company continues to expect revenues to be between $1,375 million and $1,460 million, and adjusted EBITDA in the range of $363-$379 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Cincinnati Bell has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cincinnati Bell has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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