Cincinnati Bell Soars on Q1 Earnings, Revs Beat - Analyst Blog

Telecom services provider Cincinnati Bell Inc. CBB reported first-quarter 2014 results last week. The company posted adjusted earnings per share EPS of 4 cents, beating the Zacks Consensus Estimate by a penny. Adjusted EPS also improved from a penny earned in the year-ago quarter.

The company's stellar earnings naturally uplifted the market sentiment leading the stock price of the company to close at 12.7% higher on May 8. Since then, the stock has gained significant momentum and has closed at 16.7% higher yesterday.

Meanwhile, revenues dipped 1% year over year to $322.5 million but surpassed the Zacks Consensus Estimate of $305.0 million. Excluding CyrusOne's revenues, the company registed 3.7% growth year over year in its quarterly revenues.  

Adjusted EBITDA (non-GAAP) decreased 10.4% year over year to $105.8 million in the reported quarter. EBITDA margin was 33%, down 300 basis points year over year.

Segment Results

Wireline revenues grew 2% year over year to $184 million owing to a 42% increase in Entertainment revenues and 13.0% in Other revenues. The improvement was partially offset by an 11% decline in voice revenues.

Total local access lines deteriorated 7.6% year over year to 518,800 at the end of the reported quarter and comprised 263,500 residential customers and 255,300 business customers.

The company added 1,600 high-speed Internet customers (including Fioptics and DSL) during the reported quarter, bringing its total subscriber base to 270,000 (including 178,400 DSL broadband subscribers).

Cincinnati Bell continues to expand the availability of its Fioptics fiber-to-the-home product suite, which provides entertainment, high-speed Internet and voice services. Fioptics entertainment subscribers totaled 91,600 at the end of the first quarter, up from 60,700 in the year-ago quarter.

IT Services and Hardware revenues moved up 21% year over year to $101.9 million. The upside was driven by 19% higher revenues in Telecom and IT equipment distribution and 23% revenue growth in Managed and professional services.

Wireless revenues declined 16.0% year over year to $44.7 million due to lower service revenues (down 15%) and equipment revenues (down 25%).

The company exited the first quarter with 319,800 wireless customers, including 183,600 and 136,200 post-paid and prepaid customers, respectively. This compares unfavourably with 385,300 wireless customers in the year-ago quarter and 339,700 in the last quarter.

Liquidity

Cincinnati Bell ended the quarter with cash and cash equivalents of $4.2 million, down from $5.1 million in the year-ago quarter. Net debt decreased to $2.25 billion from $2.26 billion at the end of 2013.

The company had free cash flow of $8.9 million at the end of the quarter compared with $0.5 million (excluding CyrusOne's free cash flows) at the end of first-quarter 2013.

Outlook

For fiscal 2014, Cincinnati Bell continues to expects revenues and adjusted EBITDA of approximately $1.2 billion and $383 million (plus or minus 2%), respectively.

Our Take

Cincinnati Bell's Wireline segment remains its prime growth driver based on its strong Fioptics business. Taking up new projects and the spin-off of CyrusOne into a separate entity are expected to work in favor of the company and aid earnings growth in the future.

The company currently carries a Zacks Rank #3 (Hold).

Other Stocks

Other stocks worth considering within this sector are Level 3 Communications Inc. LVLT, TalkTalk Telecom Group PLC (TKTCY) and Telstra Corporation Limited (TLSYY). All these stocks currently carry a Zacks Rank #1 (Strong Buy).