The rural telecommunications service provider
) reported fourth quarter adjusted earnings of 7 cents per share.
The quarter's results were above both the Zacks Consensus Estimate
and the year-ago earning by 2 cents.
Adjusted earnings exclude acquisition and integration costs of
$42.2 million related to the integration of the operations acquired
) fixed-line business and $1.1 million in severance and early
retirement costs (a total of $26.8 million after tax or 3 cents per
share). On a GAAP basis, earnings slipped to 4 cents from 5 cents
in the year-ago quarter.
Fiscal 2011 earnings per share declined 35.1% year over year to
Revenue fell 5.6% year over year to $1,283.1 million in the
reported quarter but edged past the Zacks Consensus Estimate of
$1,266 million. The downfall was due to the loss of residential and
business customers as well as lower switched access, video and
directory revenue. Quarterly revenue, nevertheless, represents the
highest revenue since the Verizon acquisition.
On a year-over-year basis, Local and Long-distance services,
Other, and Switched Access revenues dropped 10%, 6%, and 8.3%,
respectively, while Data and Internet services grew 2.7% year over
Fiscal 2011 revenue climbed 38.1% year over year to $5,243
million. The company successfully completed the conversion of
Verzion operations in four states, achieving total synergies of
$552 million in the full year. It expects the conversion in the
remaining nine states to commence in March 2012.
Frontier exited fiscal 2011 with 5.27 million total access
lines, down 8.3% year over year from 5.75 million lines in the
Both residential and business customers showed substantial
declines of 9.9% each to 3.1 million and 0.31 million,
respectively. Frontier added approximately 9,318 high-speed
Internet customers in the fourth quarter to reach 1.76 million (up
2.6% year over year). The company added 1,000 video customers
during the fourth quarter, bringing the total number of users to
0.56 million (up 4.9% year over year).
Frontier ended 2011 with $326.1 million in cash and cash
equivalents compared with $251.3 million in the prior year.
Long-term debt increased to $8.21 billion from $7.98 billion at the
end of 2010.
Capital expenditure declined 51.1% to $111.8 million in the
fourth quarter but rose 55.6% to $748.4 million in 2011 on an
annualized basis. Free cash flow surged 68% and 31.9% year over
year to $357.7 million and $1,105.7 million in the fourth quarter
and fiscal 2011, respectively.
The company paid a total of $746.4 million in dividend in the
full year that equates to a payout of 68% of free cash flow. In the
fourth quarter, the dividend represented a payout of 52% of free
Frontier raised the synergies target for the acquired Verizon
fixed line business to $650 million for fiscal 2012.
For 2012, Frontier projects capital expenditures and free cash
flow, excluding integration expenses and integration capital
expenditures, in the bands of $725-$775 million and $0.9-$1
billion, respectively. The company expects integration expenses and
integration capital expenditures of approximately $80 million and
$40 million, respectively.
Frontier will distribute lower quarterly dividends of 10 cents
per share to its shareholders in 2012 compared to 18 cents and
three-fourths in 2011. The reduction would enable Frontier to
lessen its debt and focus on improving leverage (net debt to
adjusted operating cash flow).
Frontier focuses on generating new revenues through customer
retention, customer wins, new product deployments, broadband
expansion, and profitability and cash flow management through
reductions in operating expenses and capital expenditures. In
addition, the reduction of access line losses would boost
Frontier's profitability and provide cost synergies going
However, intense competition, a highly leveraged balance sheet,
regulatory pressure as well as integration risks in converting the
acquired Verizon properties to its own system might limit the
earnings potential in the upcoming quarters.
We are currently maintaining our long-term Neutral
recommendation supported by a Zacks #3 (Hold) Rank.
FRONTIER COMMUN (
): Free Stock Analysis Report
VERIZON COMM (
): Free Stock Analysis Report
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