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Frontier Communications (FTR) Q4 Loss Narrows on Lower Costs

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Frontier Communications Corporation FTR reported mixed fourth-quarter 2018 financial results, wherein revenues decreased year over year but net loss narrowed on the back of cost management.

Net Loss

For the fourth quarter, the company incurred net loss of $219 million or loss of $2.12 per share compared with loss of $1,082 million or loss of $13.91 per share a year ago. The improvement was driven by decrease in total operating expenses, including goodwill impairment. For full-year 2018, net loss was $750 million or loss of $8.37 per share compared with loss of $2,018 million or loss of $25.99 per share in 2017.

Adjusted net loss for the quarter came in at $6 million or loss of 6 cents per share compared with a loss of $46 million or loss of 59 cents per share in the prior-year quarter.

Revenues

Quarterly revenues were $2,124 million compared with $2,217 million in the year-ago quarter. The year-over-year decline was primarily due to lower subsidy and regulatory revenues. For full-year 2018, revenues decreased 5.7% to $8,611 million.

Quarterly Segmental Performance

Revenues from the Customer segment were almost stable year over year at $2,030 million. While Consumer revenues were $1,088 million on the back of solid data and Internet services, Commercial revenues totaled $942 million. Subsidy and other regulatory revenues declined to $94 million from $190 million. This was due to fall in federal Universal Service Fund (USF) fees that the company bills, and decline in switched access. These were part of regulatory revenues under ASC 605. But currently under ASC 606, USF comes within both Consumer and Commercial revenues, while switched access is part of Commercial revenues.

Other Details

Goodwill impairment equaled $241 million compared with $2,078 million in the year-ago quarter. Total operating expenses were $1,997 million, down from $3,964 million. Operating income was $127 million against a loss of $1,747 million in the prior-year quarter. Adjusted EBITDA totaled $895 million compared with $919 million in the year-ago quarter, reflecting a margin of 42.1% and 41.5%, respectively.

Cash Flow and Liquidity

For full-year 2018, Frontier Communications generated $1,812 million of net cash from operating activities compared with $1,850 million in 2017. For 2018, operating free cash flow was $620 million compared with $662 million a year ago.

As of Dec 31, 2018, the company had $354 million in cash and equivalents with $16,358 million of long-term debt compared with the respective tallies of $362 million and $16,970 million a year ago. As of the same date, Frontier Communications’ leverage ratio was 4.72:1. It remains committed to reducing debt and improving its financial leverage position.

The company completed the sale of wireless towers for $76 million in January 2019, which is expected to be immaterial to revenues, earnings and adjusted EBITDA.

2019 Guidance

On the back of improving execution of operational strategies and initial benefits from its transformation program, Frontier Communications has issued financial guidance for 2019. The company expects adjusted EBITDA between $3.45 billion and $3.55 billion. While capital expenditures are expected to be nearly $1.15 billion, cash interest expenses are anticipated to be around $1.475 billion. Operating free cash flow is projected to be $575-$675 million. The company is poised to benefit from the healthy momentum in a number of initiatives under its transformation program in 2019, 2020 and beyond, while advancing toward its targeted $200 million in EBITDA run rate improvement by 2019 and $500 million by 2020.

Zacks Rank and Stocks to Consider

Frontier Communications currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are Northwest Natural Holding Company NWN, American States Water Company AWR and American Water Works Company, Inc. AWK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Northwest Natural Holding has a long-term earnings growth expectation of 4.3%.

American States Water has a long-term earnings growth expectation of 6%.

American Water Works has a long-term earnings growth expectation of 7.8%.

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