It has been about a month since the last earnings report for T-Mobile (TMUS). Shares have added about 6.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is T-Mobile due for a pullback? 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 drivers.
T-Mobile Surpasses Q1 Earnings and Revenue Estimates
T-Mobile delivered solid first-quarter 2019 results driven by record-high service revenues and adjusted EBITDA. Both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.
Net income for the quarter was $908 million or $1.06 per share compared with $671 million or 78 cents per share in the year-ago quarter. The year-over-year significant improvement was largely attributable to top-line growth.
Adjusted earnings came in at $1.17 per share compared with 78 cents per share in the year-ago quarter, beating the Zacks Consensus Estimate by 22 cents.
Quarterly total revenues increased 6% year over year to $11,080 million, primarily driven by record service revenues and best postpaid phone growth in the industry with record net additions and record-low postpaid phone churn. The top line surpassed the Zacks Consensus Estimate of $10,979 million.
Total Service revenues were up 6% for a record high of $8,277 million, which marked the 20th consecutive quarter of leading the industry in a year-over-year service revenue percentage growth. Within the Service segment, branded postpaid revenues were $5,493 million, increasing 8.3% year over year.
The company registered 1 million branded postpaid net additions and 656,000 branded postpaid phone net additions in the quarter, both metrics being the best in the industry. Branded postpaid phone average revenue per user (ARPU) decreased to $46.07, down 1.3%, due to reduction in regulatory program revenues.
Branded prepaid revenues were $2,386 million, down 0.7% year over year. Branded prepaid ARPU decreased to $37.65, down 3.2%, due to dilution from promotional rate plans and growth in Amazon Prime offering. Wholesale revenues were $304 million, up 14.3% while Roaming and other service revenues were $94 million, up 38.2%. Revenues from Equipment totaled $2,516 million, up 6.9% year over year. Other revenues were $287 million, down 3%.
Other Financial Metrics
T-Mobile reported record first-quarter adjusted EBITDA of $3,284 million compared with $2,956 million in the prior-year quarter on the back of higher service revenues and effective cost control. Operating income increased to $1,476 million from $1,282 million in the year-ago quarter.
Cash Flow and Liquidity
During the first quarter, T-Mobile generated $1,392 million of net cash from operations compared with $770 million in the year-ago quarter. Free cash flow for the same period was $618 million compared with $668 million in the prior-year quarter. As of Mar 31, 2019, the company had $1,439 million of cash and cash equivalents with long-term debt of $10,952 million.
With record quarterly results, T-Mobile offered a bullish guidance for 2019 with expectation of branded postpaid net customer additions to 3.1-3.7 million (up from the previous guidance of 2.6-3.6 million). Adjusted EBITDA is expected between $12.7 billion and $13.2 billion. Cash purchases of property and equipment, including capitalized interest, are expected at the higher end of $5.8-$6.1 billion range.
The three-year (2016-2019) compound annual growth rate guidance for net cash provided by operating activities is expected to be within 32-35% (up from the previous guidance of 17-21%), driven by improvements in the contractual terms of factoring agreements. Free cash flow (excluding payments for merger-related costs) is expected to be within 46-48%.
T-Mobile will likely drive its business with solid performances as it has cleared most of the regulatory and shareholder approvals for its pending merger with Sprint. This is a step forward in creating the New T-Mobile through which it will bring robust competition to the 5G era. Its customer growth will continue to accelerate, benefiting 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, including six of the top 10 markets.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, T-Mobile has an average Growth Score of C, 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
T-Mobile US, Inc. (TMUS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research