Frontier Communications Corporation FTR reported lackluster second-quarter 2019 results due to secular decline in business, higher operating costs and pressure across the business. The company recorded year-over-year decrease in revenues and wider loss despite stringent cost management.
For the second quarter, the company incurred net loss of $5,317 million or loss of $51.07 per share compared with loss of $72 million or loss of 92 cents per share a year ago. The wider loss was primarily attributable to goodwill impairment charges of $5,449 million. The charges were largely due to expectation of continued revenue decline, lower outlook for the overall industry, and below-par expectations about the long-term sustainability of the capital structure.
Adjusted net income for the quarter was 98 cents per share against loss of 80 cents in the prior-year quarter. The bottom line comfortably beat the Zacks Consensus Estimate of a loss of 34 cents.
Frontier Communications Corporation Price, Consensus and EPS Surprise
Frontier Communications Corporation price-consensus-eps-surprise-chart | Frontier Communications Corporation Quote
Quarterly revenues were $2,067 million compared with $2,162 million in the year-ago quarter. The year-over-year decline was primarily due to lower revenues from all the segments. The top line, however, beat the Zacks Consensus Estimate of $2,065 million.
Quarterly Segmental Performance
Revenues from the Customer segment declined to $1,972 million from $2,065 million. While Consumer revenues were $1,050 million (down from $1,095 million) owing to lower voice and video services due to customer losses, Commercial revenues totaled $922 million (down from $970 million) due to lower voice services. Subsidy revenues declined to $95 million from $97 million.
Total operating expenses were $7,526 million, up from $1,795 million due to goodwill impairment charges. Operating loss was $5,459 million against operating income of $367 million in the prior-year quarter. Adjusted EBITDA totaled $882 million compared with $884 million a year ago, reflecting a margin of 42.7% and 40.9%, respectively.
Cash Flow and Liquidity
For the first six months of 2019, Frontier Communications generated $857 million of net cash from operating activities compared with $923 million in the prior-year period. As of Jun 30, 2019, the company had $267 million in cash and equivalents with $16,357 million of long-term debt. At the quarter end, Frontier Communications’ leverage ratio was 4.69:1. It remains committed to reducing debt and improving its financial leverage position.
During the quarter, the company entered into a definitive agreement to sell operations and all associated assets in Washington, Oregon, Idaho and Montana for $1.35 billion. The sale proceeds are likely to be utilized to pay off the company’s financial obligations, while strengthening its liquidity position.
Frontier Communications lowered its earlier guidance for 2019. This was a result of lower revenue expectations due to secular decline in business, lack of clarity regarding the long-term sustainability of the capital structure and a soft outlook for the overall industry. The company currently expects adjusted EBITDA between $3.35 billion and $3.42 billion, down from earlier range of $3.45-$3.55 billion. While capital expenditures are expected to be nearly $1.2 billion, cash interest expenses are projected to be around $1.48 billion. Operating free cash flow is projected to be $290 million to $360 million, down from $575-$675 million expected earlier. The company expects $200 million in EBITDA run rate improvement by 2019 and $200-$250 million by 2020.
Zacks Rank and Other Stocks to Consider
Frontier Communications currently has a Zacks Rank #2 (Buy). Other stocks in the broader industry worth considering are United States Cellular Corporation USM, I.D. Systems, Inc. IDSY and Verizon Communications Inc. VZ, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
United States Cellular delivered average earnings surprise of 38.3% in the trailing four quarters, beating estimates thrice.
I.D. Systems has a long-term earnings growth expectation of 30%. It delivered average earnings surprise of 66.7% in the trailing four quarters.
Verizon has a long-term earnings growth expectation of 4.3%. It delivered average earnings surprise of 2.6% in the trailing four quarters, beating estimates on each occasion.
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