Frontier Communications Corporation (NASDAQ:) 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.
Net Loss
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
Revenues
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.
Other Details
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.
Guidance Lowered
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 (NYSE:) , I.D. Systems, Inc. (NASDAQ:) and Verizon Communications Inc. (NYSE:) , 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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