Crown Castle (CCI) Posts Solid Q1 Earnings, Raises Outlook

Crown Castle International Corp.’s (NYSE:CCI) first-quarter 2018 adjusted funds from operations (AFFO) per share of $1.36 exceeded the Zacks Consensus Estimate of $1.34. It also compared favorably with the year-ago tally of $1.24 per share.

Results reflect increase in site rental revenues. The company continues to benefit from its extensive tower portfolio, high demand for infrastructure and slew of fiber-operator buyouts. Also, the company raised its outlook for 2018.

Net revenues for the quarter amounted to $1.29 billion and marked year-over-year growth of 27.9%. However, the figure narrowly missed the Zacks Consensus Estimate of $1.31 billion.

Site rental revenues were $1,153 million, up 34.5% year over year that included organic growth, as well as contributions from acquisitions and other items. Particularly, site rental revenues in the quarter experienced a $12-million benefit due to a long-term agreement signed with AT&T Inc. (NYSE:T) that includes contracted new leasing activity across towers and small cells.

However, network services revenues came in at $146 million, down 8.2% year over year.

Operating Metrics

Quarterly operating income jumped 36.9% from the prior-year quarter to $349 million. Operating expenses also escalated 24.8% year over year to $950 million. Quarterly adjusted EBITDA was approximately $763 million, representing year-over-year increase of 31.3%.

Cash Flow and Liquidity

Crown Castle exited the first quarter with cash and cash equivalents of $220 million, down from $314 million reported at the end of the prior quarter. Further, as of Mar 31, 2018, the company generated $452 million of net cash from operating activities compared with $442 million in the year-ago period.

Total debt and other long-term obligations aggregated approximately $15,616 million, down from $16,044 million at the end of 2017.

Dividend Payout

During the reported quarter, Crown Castle paid common stock dividend of $1.05 per common share, up approximately 11% from the year-earlier quarter.

Q2 Outlook

For second-quarter 2018, Crown Castle expects site rental revenues in the range of $1,153-$1,163 million. Site Rental cost of operation is projected in the band of $348-$358 million. Adjusted EBITDA is estimated in the range of $757-$767 million. Interest expense (inclusive of amortization) is estimated in the $154-$164 million range. Meanwhile, FFO is anticipated in the $496-$506 million band, while AFFO is projected at $539-$549 million.

2018 Outlook

Crown Castle raised its outlook for full-year 2018. The company expects site rental revenues in the range of $4,639-$4,684 million, denoting a projected increase of $57 million at the mid-point from the prior issued outlook. Adjusted EBITDA is anticipated in the band of $3,097-$3,142 million, reflecting an uptick of $48 million at the mid-point. In addition, AFFO is guided in the band of $2,255-$2,300 million, marking a rise of $36 million at the mid-point.

Our Take

Crown Castle is well poised to benefit from the high level of investment activity of its key customers. Furthermore, the company’s continued efforts in repositioning itself from being a tower company to a fiber provider (focused on the small cell opportunity) look impressive. The company is also well on track with the integration of its recent fiber-operator acquisitions. In fact, extensive tower portfolio, increased demand for infrastructure, healthy leasing activity, continued buyout of towers and growing demand for mobile broadband are the key positives.

Nevertheless, Crown Castle competes in a highly competitive wireless tower operator industry, with incumbents like American Tower Corp. (NYSE:AMT) and SBA Communications Corp. (NASDAQ:SBAC) . Consolidation in the wireless industry might reduce demand for cell-tower deployments, and consequently, it might impact Crown Castle’s top-line performance. Also, evolution of new technologies may reduce the demand for site leases and flare up expenses.

Crown Castle currently has a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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