Crown Castle International Corp. Beats Its Own Targets

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Wireless-tower-operator Crown Castle (NYSE: CCI) reported third-quarter results on Wednesday evening. The tower portfolio delivered predictably solid results while the company continued to invest in small-cell network sites. Here's a closer look at Crown Castle's business results.

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

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Net revenues

$1.06 billion

$0.99 billion

7.1%

Net income

$115 million

$98 million

17%

GAAP Earnings per share (diluted)

$0.29

$0.29

--

Adjusted Funds From Operations (AFFO)

$459 million

$416 million

10%

AFFO is a non-GAAP metric, commonly used by real estate investment trusts to measure their operating performance, backing out many items not related to the management of real estate assets. Crown Castle's management reports it as a preferred measure of the company's core performance.

What happened with Crown Castle this quarter?

  • Site-rental revenues and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profits landed at the top end of management's guidance ranges in the third quarter. On the AFFO line, Crown Castle's results exceeded the high end of guidance by $7 million, or 1.6%. Five million dollars of the AFFO surprise resulted from some planned tower maintenance and repair projects sliding over into the fourth quarter. Otherwise, management gave credit for the solid results to a healthy market for tower leases.
  • Crown Castle's tower portfolio held steady at 40,100 sites, essentially unchanged from the year-ago quarter. Small cell installations rose to 32,000 miles of installed route fiber, up from 29,000 in the previous quarter and 17,000 a year ago.

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Management updated their full-year 2017 guidance to account for strong third-quarter results and positive leasing activity in the early weeks of the next period, offset by repairs after hurricanes Harvey, Irma, and Maria. These storms made a heavy impact on some of Crown Castle's most important tower markets in Florida, Puerto Rico, and east Texas.

  • Site-rental revenues are now seen adding up to $3.53 billion in fiscal year 2017, up from $3.52 billion in the previous guidance target.
  • The net income target held firm at $451 million, up from $357 million in 2016.
  • AFFO guidance now points to $1.78 billion for the full year, up from $1.61 billion last year, but still a reduction from the former target, at $1.83 billion.

What management had to say

"Based on the 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 CEO Jay Brown said in a prepared statement. "We believe the combination of our unparalleled portfolio of assets and our industry-leading capabilities across towers, small cells and fiber positions us to meet the evolving needs of our customers while delivering long-term value to our shareholders."

Looking ahead

The company is working through the final stages of the $7.1 billion acquisition of metro fiber operator Lightower. The deal is expected to close before the end of 2017, doubling Crown Castle's small-cell fiber footprint to 64,000 route miles. The financing requirements for this buyout are cutting into Crown Castle's AFFO per share in 2017, but are expected to pay off with improved AFFO growth as early as 2018.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Crown Castle International. The Motley Fool has a disclosure policy.