Crown Castle expects more macro and small cell revenue next year, bumps guidance for 2016

Crown Castle beat analysts' expectations for its third-quarter earnings and also indicated that it expects more site leasing revenue next year as network spending and small cell deployments in the U.S. ramp up.  

For the full year in 2015, Crown Castle now expects it will have EBITDA with a midpoint of $2.12 billion, up $37 million from its prior guidance. The firm now also expects site rental revenue with a midpoint of $3.01 billion, up $60 million from its earlier expectations.

In the third quarter Crown Castle posted funds from operations of $357.8 million, or $1.07 per share, in the quarter, beating the average estimate of eight analysts surveyed by Zacks Investment Research, which was for funds from operations of $1.04 per share, according to the AP. The company also reported total revenue for the third quarter of $918.1 million, which also beat Wall Street expectations; six analysts surveyed by Zacks expected $903.8 million, according to the AP.

Crown Castle also announced 2016 guidance, including organic revenue growth of 9.2 percent and EBITDA of $2.2 billion, which was in line with the Wall Street consensus, according to analysts at New Street Research. 

"Our confidence in delivering this level of growth is primarily driven by our long-term, high quality tenant leases with contracted rent escalations and our belief that leasing activity will continue at a similar pace to what we have seen over the last several years as all four major U.S. wireless carriers continue to upgrade and enhance their networks to meet ever increasing consumer demand for mobile broadband," Crown Castle CEO Ben Moreland said in a statement. 

The company's full-year 2016 outlook for organic site rental revenue growth of around $160 million is comprised of approximately $170 million from new leasing activity and $95 million from escalations on existing tenant lease contracts, while the company expects to lose $105 million in revenue from non-renewals. Of the roughly $170 million in expected new leasing activity, Crown Castle expects $115 million to come from its macro tower business and $55 million from small cells.

"This appears to be an acceleration in both segments as management (at CTIA) framed the expected gross new leasing in the $150MM range -- with $100MM coming from macro sites and $50MM from small cells," Evercore ISI analysts Jonathan Schildkraut and Justin Ages said in a research note.

New Street Research analysts Spencer Kurn, Jonathan Chaplin and Vivek Stalam said that despite higher than expected growth in 2015, Crown Castle "disappointingly guided to a modest slowdown in growth next year -- they expect the same dollar amount of new revenue contribution, but slower growth off a higher base."

AT&T Mobility (NYSE: T) and Sprint (NYSE: S) are expected to ramp up network spending next year. AT&T has indicated it has started using 2.3 GHz spectrum for LTE in some markets and that deployment could lead to an increase in cell site amendments. Meanwhile, Sprint is planning to roll out thousands of new macro sites and tens of thousands of small cells as part of its Next Generation Network plan, as well as make sure that nearly all of its cell sites have equipment to support LTE in the 800 MHz, 1900 MHz and 2.5 GHz bands. Other carriers are also ramping up small cell deployments, including Verizon Wireless (NYSE: VZ) in major markets like Chicago and New York City. All of that could lead to Crown Castle's benefit next year.

"We suspect that CCI is being conservative at this point in the year, as history suggests they will beat and raise during the year (they have increased revenue guidance by 2% on average over the last two years)," the New Street analysts added. "We continue to believe that organic growth will accelerate next year due to higher activity at AT&T, higher activity at Sprint, and potentially the start of AWS-3 deployments."

For more:
- see this release
- see this Dow Jones Business News article
- see this AP article 

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