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Crown Castle Doubled Its Q1 Earnings (but That's the Wrong Metric to Follow)

By Anders Bylund - Apr 18, 2019 at 8:23PM

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The wireless-infrastructure veteran delivered moderate, predictable growth on almost every metric, except for GAAP earnings.

Cell tower and fiber-supported network operator Crown Castle International (CCI -0.76%) reported first-quarter results this Wednesday. Earnings soared for reasons unrelated to the company's actual business, while other financial metrics simply ticked a few percent higher, as usual. Management also provided some color commentary on where they see the strongest markets for wireless infrastructure today. Let's dive right in.

Crown Castle's fourth-quarter results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$1.43 billion

$1.30 billion

10%

Net income attributable to common shareholders

$182 million

$86 million

112%

GAAP earnings per share (diluted)

$0.44

$0.21

110%

Data source: Crown Castle. GAAP = generally accepted accounting principles.

What happened with Crown Castle this quarter?

  • Crown Castle grew its site-rental revenues 6% year over year, landing at $1.22 billion. Straight-lined revenue growth in long-term contracts with annual fee increases stopped at a mere $1 million, and the rest was organic growth from new or renegotiated contracts.
  • The organic revenue growth largely resulted from Crown Castle's customers investing in additional 4G capacity to keep up with annual 30%-40% jumps in demand for mobile data. Investment in 5G networks is just "getting started" and represents a growth opportunity for the next several years.
  • Bottom-line earnings more than doubled year over year thanks to a $71 million financial charge in the year-ago quarter related to the early retirement of long-term obligations. Those costs were held to a mere $1 million in this quarter.
  • Adjusted funds from operations (FFO) rose 8.6%, to $606 million, reflecting a 6% increase in real estate-related amortization and depreciation.
A single cell tower in stark silhouette against a colorful sunrise.

Image source: Getty Images.

What management had to say

Despite the international flavor of Crown Castle International's corporate name, its management is focused on the domestic market with no serious plans of expanding abroad. That much was clear from this quarter's earnings call.

"Recent commentary from the White House and FCC that they are committed to ensuring the US wins the race to be the world's leader in providing 5G underscores our belief that the US is the best market in the world for infrastructure ownership," said CEO Jay Brown.

Even so, the company likes to zero in on the strongest possible metro markets. "The vast majority of [our capital investments] would be focused on the top 30 markets currently in the US, that's the focus of the wireless operators," Brown said. "So the vast majority of our capital is, we're supporting them and building for them. It's really focused in those top 30 markets."

He did leave a foot in the door for the top 100 domestic markets, hoping to spark sustainable growth across a wider footprint. But Crown Castle is putting most of its network investment cash into a selected handful of proven markets.

Looking ahead

Based on the steady first-quarter results, Crown Castle left its full-year guidance targets unchanged from the fourth-quarter report's. As a reminder, that means site-rental revenue of approximately $4.96 billion with earnings near $1.97 per share. Adjusted funds from operations profits are expected to stop in the neighborhood of $2.44 billion.

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