1) latest stimulus seems will open up 75K customers to faster more expensive service
2) no backtracking on intent for capex to be reduced in 2nd half and in 2014 (although how can you say that FtT will be substantially complete later this year - its August already they don't know if the spending will finish in Q3 or Q4 yet?
3) reaffirmed intent to paydown debt $200 million this year - $40 million interest save by paying down $800 m with revolver (although the revolver now only has $400 million available)
4) reaffirmed a 61-68% payout ratio which is sustainable
1) Mgt totally flubbed revenue predictions and I would hope the economy is better than they expected (previous projection was -1% to +2% now they are predicting -3% to -1%. This indicates they don't understand their market well enough and the investments they have made are not paying off as intended. They can not have continiously reducing revenues and pay the dividend forever
2) Obvious some concern by analysts that they can invest only 11-13% of revenues in capex and not lose ground to competitors like the cable companies (question about WIN average speeds that others disclose is telling that, that particular analyst feels they WIN is not disclosing speeds because it would show they are falling behind and will eventually need to invest more)
3) Using revolver instead of refinancing $800m with more long term debt is an effort to reduce interest in the short term to shore up the dividend payout ratio
Overall good news is at this point that the divy is safe for another 4-6 qtrs and the overall bad news is the market doesn't seem to care
I agree with all your points except the comment on the dividend. The drop in revenue is a huge huge problem. That point can't be understated. We HAVE to have growing revenue as that's the only way to slowly reduce debt and allow for CAPEX over time. And it means they were wrong about the investments we made over the past couple of years (in terms of how much business it could generate).
I'm not convinced the dividend is "safe" any longer. While I believe that the CEO's position is tied to the dividend due to his public statements, the board can simply replace him the day the announcement comes that the new "sustainable" dividend is .15
The private placement of debt is telling. Why agree to pay higher interest rates? I think the walls are slowly creeping in and there is less air to breathe.
Growing revenue allows over to reduce debt and continue to invest - which would eventually get our payout ratio into the 50%'s - which would be a secure place to be. Shrinking revenue leads to delayed investments, and potentially a less competitive company.
I'm afraid we are close to the day where something has to give and I view the dividend as the item that will "give".
It depends on whether that revenue is from a stream with large gross margins or not. Based on what they said in the earnings call I am not sure that that margins of the revenue stream in decline are very big.
Also- CAPEX is going down, so there is no need to grow revenue. So long as the revenue decrease is smaller than the capex decrease (it is) then they are fine from a cash position.
Good thing you showed up. It was getting boring around here.