), a provider of telecommunication services to rural areas,
reported second quarter 2012 adjusted earnings per share of 8
cents, which surpassed the Zacks Consensus Estimate of 4 cents.
Adjusted earnings increased 33.3% from 6 cents earned in the
Adjusted earnings for the quarter exclude the negative impacts
of $70.8 million related to loss on early debt retirement, $28.6
million in integration costs and $1.5 million in severance and
early retirement charges, offset by a $9.8 million investment
Revenue of $1,258.8 million surpassed of the Zacks Consensus
Estimate of $1,247 million but dropped 4.8% from $1,322.3 million
in the year-ago quarter. The decline was due to lower residential
and business customers, switched access, data services and video
On a year-over-year basis, local and long-distance services
revenues dropped 9.4% to $559.8 million, while data and Internet
services revenues slid 1.5% to $454.7 million. However, other
revenues registered an improvement of 14.4% to $97.3 million.
Operating Income & Expenses
Operating income in the second quarter increased 12.4% year over
year to $267.8 million and operating margin improved 330 basis
points to 21.3%. Operating expenses decreased 8.6% year over year
to $990.9 million.
Frontier exited the quarter with 5.1 million total access lines,
down 7.6% year over year from 5.5 million lines in the year-ago
quarter. Residential and business segments registered
year-over-year decreases of 8.7% and 5.8%, respectively.
Frontier added approximately 5,400 broadband customers in the
second quarter to reach 1,781,300 (up 2.5% year over year). The
company added 6,300 video customers, bringing the total number of
customers to 568,200 (up 2.5% year over year).
Frontier exited the quarter with $410.0 million of cash and cash
equivalents compared with $326.1 million at year-end 2011.
Long-term debt decreased to $7.7 billion at the end of the second
quarter from $8.2 billion at the end of 2011. The company's
debt-to-equity ratio was 177.1% versus 183.6% at year-end 2011.
Frontier spent $179.8 million as capital expenditure (including
business operations and integration activities) in the second
quarter compared to $223.9 million in the year-ago quarter. Free
cash flow was $284.9 million compared to $242.4 million in the
The company paid a total of $99.9 million in dividend in the
second quarter, equating to a dividend payout of 35% of free cash
flow compared with dividend payments of $186.6 million, which
equated to dividend payout of 77% in the year-ago quarter.
For fiscal 2012, the company maintained its estimates on 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 operating
expenses and capital expenditures on integration activities of
approximately $80 million and $40 million, respectively.
Additionally, the company expects pension contribution of
approximately $30-$40 million in 2012.
Frontier focuses on generating new revenues through customer
retention, customer wins, new product deployments, tiered pricing,
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 from peers like
), a highly leveraged balance sheet, regulatory pressure as well as
integration risks in converting the acquired properties into its
own system might limit the earnings potential in the upcoming
Consequently, we maintain our long-term Neutral recommendation
supported by a Zacks #3 Rank (Hold).
FRONTIER COMMUN (FTR): Free Stock Analysis
WINDSTREAM CORP (WIN): Free Stock Analysis
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