Cincinnati Bell shares plunge on news of declining profitability in its wireless segment

CINCINNATI - Cincinnati Bell Inc. shares are down 22 percent in heavy trading as investors react to news of declining profitability from cell phone customers.

“Our wireless business faces intense competitive pressures from the national players,” said Ted Torbeck, in his first earnings call as Cincinnati Bell CEO. “As a result, we believe wireless EBITDA (earnings before interest, taxes and depreciation) in 2013 will decline by approximately $20 million from 2012 levels. We are reviewing all options available to us, and for now, we'll continue to manage this business with a focus on cash flow.”

Cincinnati Bell shares quickly became one of the most actively traded on Wall Street, with 44 million changing hands as of 2 p.m. Wednesday. That’s nearly 14 times its three-month volume average. The research firm, Factset, reported that that one investor sold a single block of 3 million shares at mid-morning.

Company officials declined to comment on the trading activity. At 2 p.m., shares were down 22 percent to $3.25, a new 52-week low.

“They evaporated all their free cash flow,” said Raymond James analyst Frank Louthan. “For no apparent reason, it’s just gone.”

Louthan said investors were expecting steady declines in Bell’s wireless segment, where it lacks such industry standards as a high-speed LTE network and iPhone service. But Louthan said the EBITDA decline was not expected. That, coupled with an increase in capital spending by the local phone company, will deplete the company’s cash flow, worrying investors.

As WCPO Digital reported last week , Torbeck announced a ramp up in spending on its fiber optic network. He told investors that Cincinnati Bell would spend an additional $25 million to lay fiber in Cincinnati, up from $50 million last year. He said the company will spend an additional $15 million to $20 million to expand fiber optic services to local business customers.

Cincinnati Bell reported an adjusted loss of 6 cents per share on revenue of $374.7 billion for the quarter. The revenue was better than analysts expected, but the loss was one penny greater.