A month has gone by since the last earnings report for T-Mobile (TMUS). Shares have lost about 4.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is T-Mobile due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
T-Mobile Q2 Earnings Beat Estimates, Revenues Up Y/Y
T-Mobile delivered solid second-quarter 2019 results, with record-low branded postpaid phone churn and record-high service revenues. The company continues to successfully translate customer growth into industry-leading service revenue growth. Both the top line and the bottom line increased on a year-over-year basis.
Net income for the June quarter was $939 million or $1.09 per share compared with $782 million or 92 cents per share in the year-ago quarter. The year-over-year improvement was largely attributable to higher operating income and lower interest expenses.
Adjusted earnings per share came in at $1.29 compared with 92 cents reported in the year-ago quarter, beating the Zacks Consensus Estimate by 30 cents.
Quarterly total revenues increased 3.9% year over year to $10,979 million driven by growth in service revenues. However, the momentum was partly offset by decrease in equipment revenues. The top line lagged the consensus estimate of $11,139 million.
Total Service revenues were up 6.2% year over year to a record-high of $8,426 million, representing best quarterly performance ever. T-Mobile expects to lead the industry for the 21st consecutive quarter in a year-over-year service revenue percentage growth. Within this segment, branded postpaid revenues were $5,613 million, up 8.7% year over year. The U.S. wireless carrier registered 1.1 million branded postpaid net additions and 710,000 branded postpaid phone net additions in the quarter, up 9% and 3%, respectively, year over year. Branded postpaid phone average revenue per user (ARPU) declined to $46.10, down 0.9%. This was primarily due to reduction in regulatory program revenues from the adoption of tax inclusive plans, the impact of ongoing growth in Netflix offering, reduction in certain non-recurring charges, and the growing success of new customer segments and rate plans, including Business, partly offset by higher premium services revenue.
Branded prepaid revenues were $2,379 million, down 1% year over year. Branded prepaid ARPU declined to $37.46, down 2.7%, mainly due to dilution from promotional rate plans and growth in Amazon Prime offering, partly offset by increase in certain non-recurring charges. Wholesale revenues were $313 million, up 13.8% while roaming and other service revenues were $121 million, up 34.4%. Revenues from Equipment totaled $2,263 million, down 2.7% year over year. Other revenues were $290 million, down 7.9%.
T-Mobile reported record second-quarter adjusted EBITDA of $3,461 million compared with $3,233 million in the prior-year quarter on the back of higher service revenues. However, this was partly offset by higher selling, general and administrative expenses, and higher cost of services expenses. Total operating expenses increased from $9,121 million to $9,438 million year over year. Operating income increased to $1,541 million from $1,450 million reported in the year-ago quarter, backed by top-line growth.
Cash Flow & Liquidity
During the first six months of 2019, T-Mobile generated $3,539 million of net cash from operations compared with $2,031 million in the year-ago period. Free cash flow for the same period was $1,787 million compared with $1,442 million in the prior-year period. As of Jun 30, 2019, the company had $1,105 million in cash and equivalents with $10,954 million of long-term debt.
Owing to such compelling second-quarter results, T-Mobile has offered a bullish guidance for full-year 2019 with expectation of branded postpaid net customer additions of 3.5-4 million (up from the previous guidance of 3.1-3.7 million). Adjusted EBITDA is anticipated between $12.9 billion and $13.3 billion, which includes leasing revenues of $550 million-$600 million, (up from the prior guidance of 12.7 billion and $13.2 billion). Cash purchases of property and equipment, including capitalized interest, are expected at the very high end of $5.8-$6.1 billion range.
T-Mobile has cleared most of the regulatory and shareholder approvals for its pending merger with Sprint Corp. (S). Its customer growth will continue to accelerate and benefit from the investments in network and customer experience. The company boasts one of the fastest LTE networks in the industry realizing average 4G LTE download speeds of 33.4 Mbps, and average 4G LTE upload speeds of 12.1 Mbps.
Covering more than 325 million people with 4G LTE, T-Mobile is building out standards-based 5G across the country. T-Mobile continues to invest in its network and prepare for nationwide 5G with the aggressive rollout of its 600 MHz spectrum. It is on track to launch the first nationwide 5G network available next year. The company has introduced 5G millimeter wave network in six cities including New York and Los Angeles.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -5.42% due to these changes.
Currently, T-Mobile has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, T-Mobile has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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