Crown Castle International Inc. (CCI) declared third quarter of 2011 financial results, outperforming the Zacks Consensus Estimates. The solid performance was primarily driven by higher usage of smartphones and increased deployment of 4G networks.
Net profit
Quarterly GAAP net income was approximately $43.7 million or 15 cents per share compared with a net loss of $140.2 million or a loss of 49 cents per share in the year-ago quarter. Third-quarter 2011 EPS of 15 cents was well above the Zacks Consensus Estimate of 12 cents.
Revenue
Net revenue in the reported quarter was $513.9 million, up 6.6% year over year, exceeding the Zacks Consensus Estimate of $507 million. This was mainly due to improved performance by the Site Rental segment.
Gross margin in the reported quarter was 71.4% compared with 70.3% in the year-ago quarter. Operating income was $181.9 million compared with $156 million in the prior-year quarter. Quarterly adjusted EBITDA was approximately $332.4 million, up 8.6% year over year. Recurring cash flow (adjusted EBITDA excluding interest expense and sustaining capital expenditure) in the third quarter of 2011 was roughly $198.8 million, up 11.8% year over year.
Cash Flow
During the first nine months of 2011, Crown Castle generated $455.3 million of cash from operations versus $407.7 million in the prior-year period. Free cash flow (cash flow from operation less capital expenditure) during the third quarter of 2011 was $190.2 million versus $259.4 million in the year-ago quarter.
Balance Sheet
During the third quarter of 2011, Crown Castle had cash & marketable securities of approximately $75.5 million on its balance sheet compared with $112.5 million at the end of fiscal 2010. Total debt was approximately $7,013.5 million at the end of the reported quarter versus $6,750.2 million at the end of fiscal 2010. At the end of the third quarter of 2011, debt-to-capitalization ratio was 0.75 versus 0.73 at the end of fiscal 2010.
During the third quarter of 2011, Crown Castle repurchased 3 million common shares worth $123.8 million.
Site Rental Segment
Quarterly revenue was $468.9 million, up 7.3% year over year. Gross margin (site rental revenue excluding site rental cost of operations) for the segment was 74% compared with 73.4% in the prior-year quarter.
Network Services Segment
Quarterly revenue was $45 million, remaining flat year over year. Gross margin for the segment was 44.2% compared with 40.3% in the prior-year quarter.
Management Outlook for Fiscal 2011
Crown Castle expects site rental revenue in the range of $1,849 million to $1,854 million. Site rental cost of operation is projected in the $478 million to $483 million range. Adjusted EBITDA is anticipated between $1,301 million and $1,306 million. Interest expense is estimated in the $506 million to $510 million range with sustaining capital expenditure in the range of $20 million to $22 million and recurring cash flow between $772 million and $777 million. Net income, on a GAAP basis, after deducting dividend on preferred stocks, is expected in the range of $136 million to $170 million or 48 cents to 60 cents per share.
Management Outlook for Fiscal 2012
Crown Castle expects site rental revenue in the range of $1,930 million to $1,945 million. Site rental cost of operation is projected in the $470 million to $485 million range. Adjusted EBITDA is anticipated between $1,365 million and $1,380 million. Interest expense is estimated in the $505 million to $515 million range with sustaining capital expenditure in the range of $22 million to $27 million and recurring cash flow between $830 million and $845 million. Net income, on a GAAP basis, after deducting dividend on preferred stocks, is expected in the range of $160 million to $248 million or 57 cents to 88 cents per share.
Recommendation
Strong financial outlook and continuous share repurchase coupled with increased roll outs of 3G/4G high speed mobile voice, data, and video technology and higher smartphone usage will act as positive catalysts for the stock, going forward. However, huge debt and stiff competition from American Tower Corp. (AMT) and SBA Communications Corp. (SBAC) will act as negative catalysts for the stock.
We, thus, maintain our long-term Neutral recommendation on Crown Castle. Currently, Crown Castle holds a Zacks#2 Rank, implying a short-term Buy rating.
