Editor’s Note: The following information is a Smith Barney Inc. analysis released March 29. From time to time, RCR plans to print investment opinions and summaries about other publicly traded telecommunications companies as a service to our readers.
Cellular Communications Inc., which rated 2M (outperform, medium risk), announced fourth quarter 1994 and year-end operating results both for its joint venture and on a consolidated basis.
Cellular Communications and AirTouch Communications (trading on the New York Stock Exchange at $28) equally own a joint venture that provides cellular service in Ohio and Michigan.
For the quarter, revenues for the joint venture were $140.6 million, joint-venture operating cash flow was $43 million and joint-venture net income was $22.5 million. Consolidated revenues for the quarter were $11.6 million, operating cash flow was $6.9 million and net income was $1.9 million, or 5 cents per share. Overall, similar to many other cellular companies, Cellular Communications had a strong fourth quarter in terms of net additions; however, growth affected cash flow and margins due to higher selling costs, ultimately affecting the bottom line.
Despite fourth quarter trends, however, we believe investors will seek cellular equities in the current environment that are generating positive net income to minimize risk to rising interest rates. We continue to recommend purchase of Cellular Communications shares with a 12-month target price of $60.
Revising investments: We are revising our net income for Cellular Communications in 1995 and introducing 1996 numbers. Consolidated 1995 estimated operating cash flow is raised from $98 million to $103 million, and net income is increased accordingly from $1.21 per share to $1.28 per share. In 1996, we estimate operating cash flow of $150 million and net income of $87.7 million, or $1.96 per share. Our revisions reflect our expectations for Cellular Communication’s continued fundamental strength in operating cash flow and net income, generated by strong subscriber growth, despite a decline in usage trends.
Subscriber growth: Net additions for the joint venture increased substantially to a record 96,000 from 44,000 in the fourth quarter of 1993. Cellular Communications had 729,000 ending subscribers as of Dec. 31, 1994, a 53 percent increase from fourth quarter 1993 subscriber levels of 478,000. As subscriber levels continue to increase, we can expect to see continued declines in average monthly revenue per subscriber, as evidenced by fourth quarter 1994. Average monthly revenue per subscriber for the joint venture decreased 50 percent in the fourth quarter of 1994 to $48 from fourth quarter 1993 levels of $97.
Consolidated operating results: For the quarter, consolidated revenues were $11.6 million, somewhat flat from fourth quarter 1993 levels of $11.4 million and a 36 percent decline from third quarter 1994 revenues of $18 million.
Consolidated operating cash flow was $6.9 million, a 3 percent decline from fourth quarter 1993 consolidated operating cash flow of $7.1 million and a 51 percent decline from third quarter 1994 levels of $14.2 million. Net income for the quarter was $1.9 million, or 5 cents per share, vs. fourth quarter 1993 income of $2.2 million, or 5 cents per share.
For the year, total revenues increased 24 percent to $59 million; operating cash flow increased 35 percent to $43 million; and net income declined 11 percent to $17.7 million. Results indicate an overall strong year, but a weaker quarter realizing strong subscriber growth at the expense of operating cash flow and margins. Discrepancies with our results were due mostly to significantly higher selling, general and administrative costs for both the joint venture (a 34 percent increase from the third quarter of 1994 and 48 percent from fourth quarter 1993) and for consolidated results (a 23 percent increase from the third quarter of 1994 and 8 percent from the fourth quarter of 1993).
Results of the joint venture: Service revenue in the fourth quarter for the joint venture was $140.6 million, a 30 percent increase from the fourth quarter of 1993 service revenue of $107.8 million. Operating cash flow was $43 million, a 2 percent increase from fourth quarter 1993 operating cash flow of $42.3 million. Net income for the joint venture was $22.5 million, flat from fourth quarter 1993 joint-venture net income of $22.2 million.
For the year, revenues increased 27 percent to $517 million; operating cash flow increased 25 percent to $199 million; and net income increased 24 percent to $115 million.
Description: Cellular Communications primarily is a holding company which, through its subsidiaries, owns and operates cellular telephone systems in Ohio and Michigan and in portions of Indiana and Kentucky.
