Zayo Group (ZAYO) Misses Q2 Earnings & Revenue Estimates

Zayo Group Holdings, Inc. (NYSE:ZAYO) reported lackluster second-quarter fiscal 2019 results, wherein both the top line and bottom line missed the respective Zacks Consensus Estimate.

Quarterly earnings came in at $30.2 million or 13 cents per share compared with $13.2 million or 5 cents per share in the year-earlier quarter. The year-over-year increase in earnings, despite lower revenues, was primarily due to lower operating expenses. The bottom line missed the consensus estimate by a couple of cents.

Revenues decreased to $639.1 million from $653.1 million and missed the Zacks Consensus Estimate of $643 million. Operating income improved to $144.7 million from $103.2 million in the year-ago quarter owing to lower operating expenses. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) decreased to $321.2 million from $328.9 million.

Segmental Details

Revenues from the Fiber Solutions segment totaled $228.7 million, up from $203.4 million in the prior-year quarter. It represented 35.8% of the company's fiscal second-quarter revenues.

The Transport segment generated revenues of $169.8 million compared with $166 million in the year-ago quarter. It represented 26.6% of total revenues in the reported quarter.

The Enterprise Networks segment's revenues were $81.6 million, down from $93.9 million and accounted for 12.8% of the company's quarterly revenues.

Revenues at the Zayo Colocation segment were down to $57.5 million from $59.9 million. It represented 9% of fiscal second-quarter revenues.

The Allstream segment generated revenues of $96.7 million, down 22% year over year and represented 15.1% of total revenues in the reported quarter.

The Other segment's revenues were $4.8 million, down from $6.4 million and accounted for 0.8% of the company's fiscal second-quarter revenues.

Liquidity & Cash Flow

As of Dec 31, 2018, Zayo’s cash and cash equivalents were $176.4 million, with long-term debt of $5,902.6 million. Net cash provided by operating activities for the first six months of fiscal 2019 was $472.4 million compared with $456.7 million a year ago. Adjusted unlevered free cash flow was $132.3 million with $231.8 million borrowing capacity under the revolving credit facility.

During the quarter, the company repurchased 12,967,633 shares at an average price of $31.02.

Zacks Rank and Stocks to Consider

Zayo currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include Harris Corporation (NYSE:HRS) , Ubiquiti Networks, Inc. (NASDAQ:UBNT) and Comtech Telecommunications Corp. (NASDAQ:CMTL) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Harris has a long-term earnings growth expectation of 8%. It beat earnings estimates in each of the trailing four quarters, the average positive surprise being 2.9%.

Ubiquiti has a long-term earnings growth expectation of 14%. It beat earnings estimates thrice in the trailing four quarters, the average positive surprise being 11.3%.

Comtech has a long-term earnings growth expectation of 5%. It surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 252.3%.

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