Crown Castle beats Q3 expectations but 2017 guidance disappoints

Cell tower

Crown Castle’s third-quarter earnings largely exceeded the expectations of analysts, but its guidance for next year may not do much to assuage the fears of investors concerned about carriers’ efforts to move away from macrocells in favor of cheaper transmitters.

The tower company posted quarterly revenue of $992 million, beating Wells Fargo Securities’ estimate of $962 million, and network services revenue of $180 million surpassed Wells Fargo’s prediction of $155 million.

“Both site leasing revenue (and) adjusted EBITDA beat expectations, and were above the high end of guidance,” Deutsche Bank analysts wrote in a research note. “The company also increased its dividend by 7 percent, with the new 95 cents-per-quarter rate implying a 4.2 percent yield.”

While Crown Castle has long been a major player in the macrocell segment, the company emphasized its growing small-cell business.

“Driven by the continued adoption and introduction of data-intensive applications and consistent with many industry forecasts, we believe over the next decade there will be tremendous growth in wireless data traffic that will necessitate further investment in wireless networks, which we expect will result in revenue and cash flow growth for Crown Castle,” CEO Jay Brown said in a press release. “Today, as a result of our investments over the last several years to acquire towers and deploy small cells, we have the leading portfolio of U.S. wireless infrastructure, which we expect will continue to generate significant incremental returns.”

Analysts were generally unimpressed – but not necessarily surprised – by Crown Castle’s outlook for next year, however. The company projected only 3 percent growth in both revenue and EBITDA for 2017, and a 6 percent increase in AFFO (adjusted funds from operations) per share for 2017.

“Crown Castle reported solid Q3 results that beat our estimates across the board,” Wells Fargo analysts wrote in a research note. “That said, we expect CCI’s initial 2017 underwhelmed … We look for more color on the call regarding core drivers but a less than 5 percent organic revenue growth contribution is below the historic average of 6 percent to 8 percent.”