Crown Castle posted third-quarter earnings that were generally in line with expectations, but the company’s guidance for the near term did little to illuminate the overall tower market for analysts and investors.
The venerable infrastructure company posted mixed results despite seeing site rental revenues increase by 10% year over year, increasing to $893 million during the quarter. Net income came in at $115 million, up 17% year over year, and EBITDA of $605 million grew by 7% to slightly outpace estimates.
The company also increased its quarterly dividend by 11% in a move it said demonstrated its confidence heading into next year.
“We delivered another quarter of excellent financial results that demonstrate the strong operating performance of our business, exceeding our previously provided outlook for site rental revenues, net income, adjusted EBITDA and AFFO (adjusted funds from operations),” CEO Jay Brown said in a release. “We also increased our quarterly common stock dividend by 11% to $1.05 per share, reflecting our expectation of continued growth in 2018 and the anticipated contribution from the pending acquisition of Lightower, which we expect to close by year-end. Based on strong demand we see across each of towers, small cells and fiber, we expect revenue growth to accelerate driven by an increase in new leasing activity in 2018.”
Crown Castle also issued guidance for the fourth quarter, predicting site rental revenues of $904 million to $909 million and EBITDA of $624 million to $629 million, outpacing estimates. Investors appeared to share Brown’s optimism, sending shares of Crown Castle up roughly 3% this morning.
Some analysts, however, weren’t so sure. There are good reasons to be optimistic about the tower segment—AT&T is pursuing its buildout of FirstNet, for instance, and T-Mobile is already deploying the 600 MHz airwaves it won at auction earlier this year—questions remain about how much carriers will invest in their networks in the near future before they move more aggressively to transition to 5G. And a tie-up between T-Mobile and Sprint could lessen demand for towers significantly.
“There are reasons to be optimistic, and reasons to be cautious, and reasons why Crown Castle’s guide may not be as informative as we hope,” Nick Del Deo of MoffettNathanson Research wrote in a note to subscribers. “Crown Castle is always the first of the towers to report earnings each quarter, and the only [sic] to disclose guidance for the following year with Q3 rather than Q4 earnings. That means it does so with the least amount of visibility. These companies have been pretty good at the beat-and-raise game and don’t want to miss. Lowered visibility and a desire to raise guidance throughout the year will both naturally drive Crown Castle to be conservative."
“Bearing all that in mind, Crown Castle’s 2018 guidance still looks like it’s from an alternate universe where little of that good stuff is playing out,” Del Deo continued. “In particularly [sic], tower new leasing activity is expected to be ‘modestly’ higher than in 2017 despite everything laid out above. Small cell new leasing activity is projected to increase just $30 million despite having a pipeline as big as the entire base of business in Q1. We suspect investors will not be excited by this news.”