U.S. Cellular (USM), the wireless subsidiary of Telephone and Data Systems (TDS), reported fourth quarter 2009 results with earnings per share (EPS) of 14 cents missing the Zacks Consensus Estimate of 21 cents. Earnings were hurt by impairment charges of $14 million.
 
The Chicago-based carrier reported a net income of $12.4 million for the quarter compared to a net loss of $200.1 million (or $2.29 per share) reported a year ago. The year-ago quarter’s bottom-line was hit by impairment charges of $386.7 million.
 
For full year 2009, the reported EPS of $2.48 also fell short of the Zacks Consensus Estimate of $2.58. Net income of $216 million for the year has increased by more than six times from $33 million in 2008. The current Zacks Consensus Estimate for 2010 is $2.14 per share.
 
Revenue, ARPU & Churn
 
The company reported operating revenue of $1,061 million, up 1% from $1,053 million a year ago, exceeding the Zacks Consensus Estimate of $1,019 million. Revenue for the full year declined 1% to $4.21 billion while beating the Zacks Consensus Estimate of $4.13 billion.  For 2010, analysts expect revenue of $4.08 billion.
 
Service revenue, which grew 1% to $986.3 million in the quarter remains under pressure due to lower inbound roaming revenue resulting from Verizon‘s (VZ) acquisition of Alltel. Data revenue, however, increased 34% year over year to $190 million, accounting for 19% of services revenue. ARPU (average revenue per user) increased to $53.55 from $52.71 a year ago while postpaid churn remained flat at 1.6%.
 
Subscriber Trend
 
U.S. Cellular registered a net addition of 10,000 customers during the quarter, bringing its total subscriber base to 6.14 million, down from 6.2 million at the end of 2008. The company exited 2009 with a retail customer base of 5.74 million. Postpaid customers accounted for 95% of the total retail customers.
 
U.S. Cellular remains challenged by the increasingly competitive domestic wireless market which is affecting its customer accretion. Competition has increased after the launch of exclusive premium wireless handsets by the top-tier carriers such as Verizon and AT&T (T).
 
Financial Condition
 
U.S. Cellular generated cash flow from operating activities of $881.8 million and spent $546.8 million in capital expenditures during 2009, resulting in a free cash flow of approximately $335 million. The carrier exited 2009 with $294.4 million in cash and cash equivalents and approximately $868 million in total debt.
 
Outlook
 
The company released its forecasts for 2010 with service revenue projected between $3.975 million and $4,075 million and operating income of $250-$350 million. Depreciation, amortization and accretion is expected to be approximately $600 million with a capital expenditure target of $600 million.
 
In order to drive wireless growth, U.S. Cellular is expanding its 3G wireless broadband network (based on EV-DO technology) coverage, having already achieved 75% penetration of the wireless customer base at the end of 2009. The company upgraded roughly 60% of its total cell sites with 3G EV-DO by the end of 2009.
 
To further drive data revenue, U.S. Cellular is expanding its smartphone portfolio with premium handset offerings. The company launched Research In Motion‘s (RIMM) latest CDMA smartphone BlackBerry Tour 9630 in 2009. This has enabled the carrier to join the league of Tier-1 carriers in offering top-notch cellular handsets while adding an important data revenue stream.
 
However, U.S. Cellular’s aggressive 3G roll-out plans through 2010 could strain finances if capital expenditures are required beyond management’s expectations. Moreover, decline in roaming revenues along with subscriber retention challenges due to competition may impact service revenue growth moving forward.
Read the full analyst report on “USM”
Read the full analyst report on “TDS”
Read the full analyst report on “VZ”
Read the full analyst report on “T”
Read the full analyst report on “RIMM”
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