Second-quarter results from public tower companies reflect improved financial stability and greater optimism that cell-site additions will ramp up in the coming months.
Crown Castle International Corp. released its second-quarter financials late last week. The company reported revenue of $224.2 million, down slightly from $225.5 million for second-quarter 2002. Site rental and broadcast transmission revenue accounted for $189.5 million of that revenue, up 10 percent from the year-ago quarter. Crown said U.S. site rental revenue increased 6.9 percent from last year to $110.5 million. U.K. site rental and broadcast transmission revenue was up 16.7 percent to $72.8 million.
Net losses bounced up to $100.9 million, or 47 cents per share, compared with $89.5 million, or 41 cents per share, last year. Crown drastically reduced capital expenditures during the quarter, recording $20.7 million compared with $126.3 million last year. Free cash flow was $73.3 million, well up from negative cash flow of $72.3 million cash last year.
“While our outlook suggests that leasing activity will remain constant at current levels, we see some indications that U.S. leasing activity may improve during the second half of 2003 and into 2004,” said John Kelly, president and chief executive officer of Crown. “A combination of several factors appears to be positively influencing U.S. wireless carriers’ desire to deploy additional cell sites to improve network quality.”
Crown does business with Cingular Wireless L.L.C. and could see increased work due to Cingular’s reported purchase of NextWave Telecom Inc. spectrum.
Crown also announced the quarterly dividend on its 6.25 percent convertible preferred stock will be paid on Aug. 15 at a rate of 82.2 shares of common stock per 1,000 shares of preferred stock.
Shares of Crown were trading at $9.81 following the earnings release.
Crown’s earnings came one week after rival American Tower Corp.’s earnings announcement, which was met with enthusiasm from tower industry analysts. “We believe the environment for the tower business continues to improve due to growth in wireless subscriber net additions and minutes of use per subscriber, the likely implementation of number portability, the likely deferral of wireless carrier consolidation, decreases in the cost to the carriers of cell site-related network equipment and more accommodative capital markets,” read an analyst note from Bear, Stearns & Co. Inc.
American Tower followed its earnings with other financial announcements last week. The company said it will sell $175 million principal amount of its 3.25-percent convertible notes due 2010 through an institutional private placement and give initial buyers an option to purchase an additional $35 million of the notes. The notes are convertible into shares of Class A common stock at a rate of approximately $12.22 per share. The offering is expected to garner up to $202.7 million. In addition, American Tower will sell 12.4 million shares of Class A common stock at $8.89 per share. Underwriters have an option to purchase an additional 1.86 million shares. Net proceeds could be up to $120.6 million for the offering.
Analysts from Raymond James & Associates Inc. reacted to the financial moves by reducing American Tower’s 2004 and 2005 Valuation Free Cash Flow per share estimates from 76 cents to 73 cents, and from $1.11 to $1.06, respectively. Raymond James also reduced it price target to $12 to reflect the new VFCF estimates. The firm rates shares of American Tower at “Strong Buy.” The company was trading at $9.28 per share at press time.
SBA Communications Corp. and SpectraSite Communications Inc. both are scheduled to announce second-quarter results next week. Moody’s Investors Service last week confirmed ratings of SBA, concluding its review for possible downgrade that initiated last fall. Moody’s said SBA’s sale of 801 towers and the refinancing of its secured credit facility have removed the company from immediate financial distress. However, the ratings service warned “even if SBA can continue to generate cash from operations at the $30 million level, free cash flow would be approximately $15 to $20 million, a level insufficient to support so large a debt burden.”
SBA was trading at $3.72 per share at press time and SpectraSite, which emerged from bankruptcy earlier this year, was at $59 per share.
