A month has gone by since the last earnings report for Altice USA (ATUS - Free Report) . Shares have added about 4.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Altice USA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Altice Q1 Earnings Outpace Estimates, Revenues Lag
Altice reported healthy first-quarter 2019 results with improved subscriber trends and EBITDA growth. Both the top line and the bottom line increased year over year. The company is benefiting from its investments to improve customer experience and deliver advanced connectivity services, business solutions and high-quality content.
Quarterly net loss was $25 million or loss of 4 cents per share compared with net loss of $129 million or loss of 17 cents per share in the year-ago quarter. The significant improvement was primarily driven by top-line growth, and gain on investments and sale of affiliate interests.
Adjusted earnings were 14 cents per share, which comfortably beat the Zacks Consensus Estimate by 10 cents.
Total revenues increased 2.9% year over year to $2,396.6 million driven by growth across residential, business services and advertising operations. The top line, however, lagged the Zacks Consensus Estimate of $2,407 million.
Residential revenues were $1,947.4 million, up 2.4% year over year with significant improve in customer trends and net additions in broadband business. Average revenue per user increased 2.1% year over year to $142.60.
Business services revenues were $350.7 million, up 5.3% with strength in Enterprise & Carrier segment, and SMB. Altice is making progress with new initiatives including Business Hosted Voice for SMB customers and security/DDOS protection for mid-market enterprise customers. The SMB customer base grew due to improved value proposition with voice and data bundles, and reduced churn.
Advertising revenues totaled $93.5 million, up 6.8% owing to higher targeted data and analytics revenues. Altice, through its data and analytics subsidiary a4, is experiencing healthy growth with Athena, a self-serve client application for end-to-end multi-screen campaign management with “one-stop shopping” for advertisers. Athena is the main growth driver of a4.
Quarterly operating income improved considerably to $442.5 million from $313 million in the year-ago quarter, mainly due to higher revenues and lower depreciation and amortization charges. Adjusted EBITDA was $1,032.9 million compared with $981 million a year ago.
Altice has inked an agreement to acquire Cheddar — the digital-first news company — for $200 million, subject to closing conditions. The buyout would broaden Altice’ portfolio of high-quality news businesses by adding Cheddar’s innovative digital-first, live business, general news and college network focused on young professional and millennial audiences. The transaction is expected to close in the next two months owing to regulatory approval.
Cash Flow and Liquidity
Operating free cash flow for the quarter was down 4.3% to $693 million, reflecting increased investment in FTTH, new home build, DOCSIS 3.1 and mobile. Free cash flow decreased 5.6% year over year in the first quarter to $164 million, mainly due to higher investment in key growth initiatives. At the end of the reported quarter, the company’s consolidated net debt was $22,135 million.
Altice repurchased $600 million worth of shares in the quarter under its share repurchase plan and expects to repurchase $1.5 billion worth of shares (excluding any potential merger, asset sale and acquisition activity) in 2019.
Altice has reiterated its outlook for full-year 2019. It anticipates revenue growth of 2.5-3% year over year. The company also reiterated its plan to expand adjusted EBITDA and cash flow margins, while maintaining the year-end leverage target unchanged at 4.5x to 5.0x net debt/adjusted EBITDA.
It is on track with new growth initiatives including the launch of wireless service this summer, accelerating fiber-to-the-home deployment and enhancing the growth of advanced advertising and news platforms, including Cheddar.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a flat path over the past two months. The consensus estimate has shifted -5.88% due to these changes.
Currently, Altice USA has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Altice USA has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.