U.S. Cellular Beats, Hires New CEO - Analyst Blog

U.S. Cellular (USM), the wireless subsidiary of Telephone and Data Systems (TDS), reported first-quarter 2010 results with earnings per share (EPS) of 55 cents beating the Zacks Consensus Estimate by a penny while declining from 97 cents a year ago. Net income plummeted 43% year-over-year to $48.2 million on account of lower revenues and higher operating expenses.

Revenue, ARPU & Churn

The Chicago-based cellular operator posted operating revenues of $1,024 million, down 3% year-over-year, missing the Zacks Consensus Estimate of $1,029 million. Service revenues, which fell 2% to $965.2 million, remain under pressure due to lower inbound roaming revenues resulting from Verizon‘s (VZ) acquisition of Alltel.

Data revenues, however, increased 28% year over year to $201.3 million, accounting for 21% of services revenues. ARPU (average revenue per user) declined to $52.42 from $52.64 a year ago. Postpaid churn reduced to 1.4% from 1.5% a year ago, helped by an expanded smartphone range.

Subscriber Statistics

U.S. Cellular registered a net addition of 6,000 customers during the quarter (a decline from 47,000 net additions a year ago), bringing its total subscriber base to 6.15 million. The company exited the quarter with a retail customer base of 5.77 million. Postpaid customers accounted for 95% of the total retail customers.

U.S. Cellular is challenged by the increasingly competitive domestic wireless market which is affecting customer accretion. The entity remains susceptible to aggressive product/pricing strategies of top-tier carriers, such as AT&T (T) and Verizon.

Financial Condition

U.S. Cellular generated cash flow from operating activities of $152.3 million and spent $121.5 million in capital expenditures, resulting in a free cash flow of approximately $30.8 million. The carrier exited the quarter with $289.7 million in cash and cash equivalents and approximately $868 million in total debt.

Outlook

The company has reaffirmed its forecasts for 2010 with service revenues projected between $3.975 million and $4,075 million and operating income of $250-$350 million. Depreciation, amortization and accretion are expected to be approximately $600 million with a capital expenditure target of $600 million. Both remain unchanged. The carrier expects an adjusted OIBDA of $850-$950 million.

U.S. Cellular has reportedly hired McDonald‘s (MCD) incumbent global chief marketing officer and executive vice president Mary N. Dillon as the new president and CEO. She will replace U.S. Cellular’s retiring president and CEO John E. Rooney effective June 1, 2010.

Moving forward, U.S. Cellular’s prospects are expected to be driven by the expansion of its 3G network and premium handsets, which may continue to boost data revenues while keeping the churn rate in check. Moreover, the carrier is evaluating the potential adoption of Long-Term Evolution (LTE), a 4G mobile broadband technology. However, U.S. Cellular’s high-margin roaming revenues remain under pressure which may continue to affect service revenues.