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Why Is U.S. Cellular (USM) Down 1% Since Last Earnings Report?
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A month has gone by since the last earnings report for United States Cellular (USM - Free Report) . Shares have lost about 1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is U.S. Cellular due for a breakout? 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.
U.S. Cellular Beats on Q1 Earnings, Reiterates View
U.S. Cellular reported robust first-quarter 2020 financial results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Accretive customer connections and churn rate mitigation strategies contributed to growth in service revenues.
Net Income
On a GAAP basis, net income in the March quarter was $71 million or 81 cents per share compared with $54 million or 62 cents per share in the year-ago quarter. The year-over-year improvement can be attributed to reduced income tax expenses. Backed by network modernization efforts, United States Cellular’s quarterly results reflect a significant tax benefit from the CARES (Coronavirus Aid, Relief, and Economic Security) Act, partially offset by higher levels of bad debts. The bottom line surpassed the Zacks Consensus Estimate by 31 cents.
Revenues
Quarterly total operating revenues were relatively flat at $963 million and surpassed the consensus estimate of $957 million. While revenues from service increased 2.8% year over year to $762 million, the same from equipment sales declined 10.7% to $201 million as social distancing measures due to coronavirus fears led to retail store closures.
Other Details
Total operating expenses inched up 1.2% year over year to $913 million, primarily due to higher depreciation and amortization charges as well as SG&A expenses. Operating income was $50 million compared with $64 million in the prior-year quarter. In the first quarter, adjusted EBITDA came in at $281 million whereas adjusted OIBDA was $231 million.
Operating Metrics
While total cell sites in service were 6,629 at the end of the reported quarter compared with 6,506 a year ago, company-owned towers were 4,184 compared with 4,106. As of Mar 31, postpaid ARPU increased to $47.23 from $45.44 and postpaid ARPA (average revenue per account) rose to $122.92 from $118.84. Postpaid churn declined to 1.21% from 1.26% reported a year ago. Prepaid ARPU increased to $34.07 from $33.44 and prepaid churn fell to 4.67% from 4.92%.
Cash Flow & Liquidity
During the first three months of 2020, U.S. Cellular generated $342 million of net cash from operations compared with $287 million in the year-ago quarter. For the same period, the company’s non-GAAP free cash flow totaled $27 million compared with $180 million in the prior-year quarter.
As of Mar 31, 2020, the wireless telecommunications service provider had $258 million in cash and equivalents with $1,503 million of net long-term debt. Notably, U.S. Cellular repurchased 803,836 shares for $23 million in first-quarter 2020.
2020 Revenue Guidance Reiterated
Despite uncertainties pertaining to the coronavirus pandemic, U.S. Cellular has kept its revenue guidance for 2020 unchanged. The company continues to expect service revenues in the band of $3,000-$3,100 million. Adjusted EBITDA is projected in the range of $900-$1,025 million compared with previous expectation of $950-$1,075 million. The company anticipates adjusted OIBDA in the band of $725-$850 million compared with earlier expectations of $775-$900 million. Capital expenditures are expected between $850 million and $950 million.
Going Forward
U.S. Cellular continues to strengthen its customer base while improving churn management and enhancing brand positioning. With focus on the cost structure, the company has been making efforts to provide essential products and services. Markedly, the company witnessed a year-over-year rise of 59% in data traffic, thereby meeting increased network demands in this hour of crisis. U.S. Cellular’s supply chain and logistics were also in full swing where nearly 70% of its retail stores remained open in this pandemic. Progressing with 5G and network modernization initiatives, the company intends to attract new customers by providing superior quality network and national coverage. Due to the impact of COVID-19 pandemic, macroeconomic factors like unemployment and credit market downfall coupled with lower store traffic could negatively impact U.S. Cellular’s profitability.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, U.S. Cellular has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 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.
Outlook
U.S. Cellular has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is U.S. Cellular (USM) Down 1% Since Last Earnings Report?
A month has gone by since the last earnings report for United States Cellular (USM - Free Report) . Shares have lost about 1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is U.S. Cellular due for a breakout? 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.
U.S. Cellular Beats on Q1 Earnings, Reiterates View
U.S. Cellular reported robust first-quarter 2020 financial results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Accretive customer connections and churn rate mitigation strategies contributed to growth in service revenues.
Net Income
On a GAAP basis, net income in the March quarter was $71 million or 81 cents per share compared with $54 million or 62 cents per share in the year-ago quarter. The year-over-year improvement can be attributed to reduced income tax expenses. Backed by network modernization efforts, United States Cellular’s quarterly results reflect a significant tax benefit from the CARES (Coronavirus Aid, Relief, and Economic Security) Act, partially offset by higher levels of bad debts. The bottom line surpassed the Zacks Consensus Estimate by 31 cents.
Revenues
Quarterly total operating revenues were relatively flat at $963 million and surpassed the consensus estimate of $957 million. While revenues from service increased 2.8% year over year to $762 million, the same from equipment sales declined 10.7% to $201 million as social distancing measures due to coronavirus fears led to retail store closures.
Other Details
Total operating expenses inched up 1.2% year over year to $913 million, primarily due to higher depreciation and amortization charges as well as SG&A expenses. Operating income was $50 million compared with $64 million in the prior-year quarter. In the first quarter, adjusted EBITDA came in at $281 million whereas adjusted OIBDA was $231 million.
Operating Metrics
While total cell sites in service were 6,629 at the end of the reported quarter compared with 6,506 a year ago, company-owned towers were 4,184 compared with 4,106. As of Mar 31, postpaid ARPU increased to $47.23 from $45.44 and postpaid ARPA (average revenue per account) rose to $122.92 from $118.84. Postpaid churn declined to 1.21% from 1.26% reported a year ago. Prepaid ARPU increased to $34.07 from $33.44 and prepaid churn fell to 4.67% from 4.92%.
Cash Flow & Liquidity
During the first three months of 2020, U.S. Cellular generated $342 million of net cash from operations compared with $287 million in the year-ago quarter. For the same period, the company’s non-GAAP free cash flow totaled $27 million compared with $180 million in the prior-year quarter.
As of Mar 31, 2020, the wireless telecommunications service provider had $258 million in cash and equivalents with $1,503 million of net long-term debt. Notably, U.S. Cellular repurchased 803,836 shares for $23 million in first-quarter 2020.
2020 Revenue Guidance Reiterated
Despite uncertainties pertaining to the coronavirus pandemic, U.S. Cellular has kept its revenue guidance for 2020 unchanged. The company continues to expect service revenues in the band of $3,000-$3,100 million. Adjusted EBITDA is projected in the range of $900-$1,025 million compared with previous expectation of $950-$1,075 million. The company anticipates adjusted OIBDA in the band of $725-$850 million compared with earlier expectations of $775-$900 million. Capital expenditures are expected between $850 million and $950 million.
Going Forward
U.S. Cellular continues to strengthen its customer base while improving churn management and enhancing brand positioning. With focus on the cost structure, the company has been making efforts to provide essential products and services. Markedly, the company witnessed a year-over-year rise of 59% in data traffic, thereby meeting increased network demands in this hour of crisis. U.S. Cellular’s supply chain and logistics were also in full swing where nearly 70% of its retail stores remained open in this pandemic. Progressing with 5G and network modernization initiatives, the company intends to attract new customers by providing superior quality network and national coverage. Due to the impact of COVID-19 pandemic, macroeconomic factors like unemployment and credit market downfall coupled with lower store traffic could negatively impact U.S. Cellular’s profitability.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, U.S. Cellular has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 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.
Outlook
U.S. Cellular has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.