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Why Is Frontier Communications (FTR) Down 30.4% Since Last Earnings Report?

Zacks Equity Research
CSS Industries (CSS) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

It has been about a month since the last earnings report for Frontier Communications (FTR). Shares have lost about 30.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Frontier Communications due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Frontier Communications Q4 Loss Narrows on Lower Costs

Frontier Communications 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.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -405.56% due to these changes.

VGM Scores

At this time, Frontier Communications has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Frontier Communications has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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