TDS (TDS) Down 14.4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Flushing Financial (FFIC) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Telephone & Data Systems (TDS). Shares have lost about 14.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is TDS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Telephone and Data Systems Q4 Earnings Miss, Up Y/Y

Telephone and Data Systems reported relatively modest fourth-quarter 2018 results with year-over-year increase in revenues and adjusted earnings. However, both the bottom line and the top line missed the respective Zacks Consensus Estimate in the quarter.

Net Income

GAAP net income came in at $16 million or 14 cents per share compared with $287 million or $2.54 per share in the year-ago quarter primarily due to higher operating expenses and lower income tax benefit. However, non-GAAP earnings improved to 14 cents per share from 5 cents in the year-earlier quarter. The bottom line missed the Zacks Consensus Estimate of 16 cents. For full-year 2018, GAAP net income was $135 million or $1.17 per share compared with $153 million or $1.37 per share in 2017.

Revenues

Quarterly total operating revenues were $1,332 million compared with $1,308 million in the prior-year quarter. The top line missed the consensus estimate of $1.34 billion. For full-year 2018, the company generated revenues of $5,109 million compared with $5,044 million a year ago.

U.S. Cellular

By segments, operating revenues from U.S. Cellular division were $1,051 million, up 2.1% year over year. Total operating expenses increased to $881 million from $877 million. Operating income was $3 million against a loss of $4 million in the year-ago quarter. Postpaid average revenue per user improved to $45.58 from $44.12, while average revenue per account was up to $119.60 from $118.05.

TDS Telecom

Operating revenues were $232 million, up 1.3% year over year primarily driven by strong increases in broadband connections. Revenues from wireline were $173 million, down 1.7% due to lower ILEC sale as the company focused to pursue commercial fiber. Cable revenues were $60 million, reflecting an increase of 11.1%, primarily driven by growth in residential connections.

Cash Flow and Liquidity

In 2018, Telephone and Data Systems generated $1,017 million of cash from operating activities compared with $776 million a year ago. Free cash flow (non-GAAP) for 2018 totaled $241 million compared with $91 million in 2017.

As of Dec 31, 2018, the company had $921 million of cash and cash equivalents with $2,418 million of long-term debt compared with respective tallies of $619 million and $2,437 million on Dec 31, 2017.

Guidance

For full-year 2019, Telephone and Data Systems expects total operating revenues in the range of $5,225-$5,475 million. Adjusted EBITDA is projected to be $1,185-$1,365 million, while capital expenditure is estimated to be in the range of $940-$1,090 million. The company projects adjusted OIBDA in the band of $1,000-$1,180 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, TDS 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 C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise TDS has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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