Why Did Frontier Communications Corp. Shares Drop 14% in February?
Frontier Communications (NASDAQ: FTR) has been moving in the wrong direction since its April 2016 purchase of Verizon 's wireline business in California, Texas, and Florida (CTF) for $10.54 billion. That gave it approximately 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS video subscribers, and it has struggled to hold onto them .
In buying the CTF properties Frontier was betting on scale. That has worked in a sense as the company has achieved over $1 billion in cost savings, but those savings have been undermined by a steady drop in customers and revenue.
Frontier reported its fourth quarter and full-year results on Feb. 27 and the numbers were bleak. In the quarter, the company reported revenue of $2.22 billion, down from $2.4 billion a year. In addition, the cable and internet provider lost $1.03 billion, which included an $830 million tax benefit resulting from the reduction in federal tax rates, and a $1.82 billion (after tax) goodwill impairment. For the full year, the company lost $1.8 billion.
Investors in Frontier have been hit with blow after blow. They underwent a 15-1 reverse stock split and saw the company cut its dividend. Now, after its lousy Q4 numbers, Frontier has suspended its dividend entirely.
This seemingly endless stream of bad news has not been good for shareholders. After closing January at $8.19 shares fell to $7.03 at the end of February, a 14% drop according to data provided by S&P Global Market Intelligence .
Frontier has lost subscribers in every quarter since the CTF deal closed. Despite that, CEO Dan McCarthy believes that the needle is pointed in the right direction.
"We are pleased with continued improvement in subscriber trends and churn in our California, Texas, and Florida (CTF) markets, and the continued operating efficiencies achieved in the fourth quarter," he said. "...For 2018, we remain committed to enhancing the customer experience, further improving churn, maintaining strong cash flow, and strengthening the balance sheet as we pursue further stabilization of the business and growth longer-term."
The CEO also spun the suspension of the dividend as an opportunity to free up $250 million for debt reduction. That's certainly a glass half full way to look at what has so far been a challenging operation that has not worked as expected.
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