Shares of U.S. Cellular plunge on Q1 earnings

Shares of U.S. Cellular plummeted after the carrier fell well short of expectations in its quarterly earnings.

The nation's fifth-largest mobile operator posted first-quarter revenue of $958 million, below the $972.2 million expected by three analysts surveyed by Zacks Investment Research, according to the AP. It reported profit of 10 cents per share, less than half the 23 cents per share analysts had estimated and far lower than the $1.89 per share it posted in the prior year.

Net income was $9 million, down from last year's $160 million, although the year-ago quarter was buoyed by an after-tax gain of $145 million from the sale and exchange of businesses and licenses.

The company continued to back its earlier forecast for the full year, saying it expects total operating revenues to be in the range of $3.9 billion to $4.1 billion. But that didn't seem to assuage the fears of investors, who sent shares tumbling more than 12 percent by mid-day.

Shares of the Chicago-based company had climbed roughly 5 percent in 2016 and 10 percent over the last year.

"We are off to a good start in 2016 with solid first quarter results," CEO Kenneth Meyers said in a press release. "We continue to grow our customer base and increase customer loyalty as evidenced by significantly lower churn and higher customer satisfaction scores."

Interestingly, Myers said U.S. Cellular saw a slight uptick in its handset upgrade rate, which is counter to an ongoing industry-wide trend of extended replacement cycles as users hold on to old phones for longer. Myers credited the popularity of the Samsung Galaxy S7 with helping to boost sales to existing customers.

Additionally, the company plans to participate in the upcoming incentive auction of 600 MHz airwaves but can't discuss plans due to the FCC's mandated quiet period in advance of the event.

Here are some details about U.S. Cellular's first quarter:

Subscribers: The company reported 45,000 net postpaid additions and 12,000 net prepaid additions. Its postpaid ARPU was $48.13, down substantially from the $54.87 it posted during the prior year, following an industry-wide trend. Its prepaid ARPU of $35.51 was down only slightly from the $35.72 a year ago. U.S. Cellular lost 20,000 net postpaid feature phone users, though, resulting in an overall net loss of 5,000 postpaid phone customers.

Financials: Operating revenues were $958 million, down from $965 million during the prior year, with service revenues sliding 8 percent year-over-year but equipment sales increasing 45 percent to $198 million. The mid-point of U.S. Cellular's 2016 guidance is higher than Wall Street expectations of $3.97 billion.

LTE and VoLTE: The carrier completed the buildout of its LTE network several months ago, and plans to begin to deploy VoLTE next year.

Summary: U.S. Cellular executives maintain the company enjoyed a good -- if not necessarily great -- first quarter. The company posted solid gains in net postpaid smartphone subscribers, which remains the most lucrative segment of the market, and it now has 4G roaming deals in place with three of the four largest U.S. carriers, one of which has already launched. It also pointed to its lowest churn rate in the last 11 quarters, and its growing footprint of cell sites. Some bright spots certainly can be found in U.S. Cellular's earnings, but investors clearly aren't convinced.

For more:
- see this AP story
- see this U.S. Cellular press release

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