Frontier (FTR) Tops Earnings by a Penny, Revenues in Line
Frontier Communications Corp. (FTR) – provider of telecommunication services to rural areas – reported its third-quarter 2014 adjusted earnings per share of 5 cents that came a penny ahead of the Zacks Consensus Estimate. The bottom line, however, declined 16.7% on a year-over-year basis.
Quarterly revenues of $1,140.9 million, which came in line with the Zacks Consensus Estimate, dropped 3.7% year over year. The year-over-year decrease in the top line was primarily due to decline in revenues from voice services and data and internet services.
On a year-over-year basis, voice revenues declined 7.5% to $471.8 million and data and Internet services revenues slipped 0.5% to $468.8 million. On the other hand, other revenues registered growth of 10.6% to $76 million.
Operating Income
Adjusted operating income in the third quarter declined 4.4% year over year to $197 million. Adjusted operating margin was 19.2% compared with 22.2% in the year-ago period.
Customer Trends
At the end of third-quarter 2014, the number of residential customers touched 2,740,278, while business subscribers totaled 260,823. Customer churn was 1.86% versus 1.81% in the third quarter of 2013.
Frontier added 21,855 broadband users in the quarter to reach 1,953,376 (up 6.2% year over year). As of Sep 30, 2014, video subscribers totaled 395,899 (up 4.8% year over year).
Liquidity
Frontier exited the third quarter with $808.5 million of cash and cash equivalents compared with $880 million at year-end 2013. Long-term debt increased to $9,185.6 million at the end of the quarter from $7,873.7 million at the end of 2013.
In the third quarter, the company incurred capital expenditure of $152.4 million for business operations, as against $157.6 million in the year-ago quarter. The company also spent $40.7 million during the quarter on account of integration activities related to the pending AT&T, Inc. (T) Connecticut transaction. Free cash flow was $149.1 million against $232.2 million in the year-ago quarter.
Dividend
The company has paid a total of $300.6 million in dividends in the first nine months of this year, which equals to a payout of 50% of free cash flow generated through the same period. This includes dividend payments of $100.2 million in the third quarter alone, which is equal to a payout of 67%.
Outlook
We appreciate the various strategic initiatives taken by Frontier, which include new product deployment, broadband expansion, new pricing plans and lucrative collaborations.
However, we prefer to remain on the sidelines at present on account of strong competition in the telecommunication market, regulatory issues and the effects of high promotional costs as well as access line loss, which continue to pose major threats to Frontier.
Frontier presently carries a Zacks Rank #3 (Hold).
Other Stocks
Better-ranked stocks worth considering in this sector include Consolidated Communications Holdings Inc. (CNSL) and General Communication Inc. (GNCMA). Both the stocks hold a Zacks Rank #2 (Buy).
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