Windstream Lags on Q3 Earnings, Revenues; Stock Slides

Windstream Holdings Inc. (WIN) reported disappointing financial results for the third-quarter of 2014. GAAP net income was $8 million or 1 cent per share compared with a net income of $30.6 million or 5 cents per share in the year-ago quarter. Adjusted earnings per share of 3 cents were a penny shy of the Zacks Consensus Estimate. The dismal results have led the stock to trade in the red in the early hour’s trade on Nasdaq.

Pro forma revenues decreased 3% year over year to $1,455.5 million in the third quarter and also fell short of the Zacks Consensus Estimate of $1,468 million. Total Service revenues fell 2%, while Product revenues reduced 18% year over year. Decommissioning legacy circuits by wireless carriers, decline in switched access revenues, lower intrastate access rates, fewer usage minutes and other transport-related network grooming affected the third quarter performance.

Adjusted OIBDA (excluding non-cash pension expense, non-cash stock-based compensation and restructuring charges) was $524.5 million, down 9%.

Windstream plans to spin off certain assets into an independent, publicly traded real estate investment trust (:REIT), which will allow the company to augment network investments, offer improved service and boost shareholder return. Management expects that the spinoff of the REIT would take place in the first quarter of 2015.

Subscriber Statistics

During the third quarter, total access lines, which include voice lines, high-speed Internet and digital television customers, decreased 5% year over year to 3.1724 million. On a year-over-year basis, voice lines dropped 6% while digital television customers witnessed a decline of 5%. High-speed Internet also fell 3%.

Liquidity & Cash Flow

Windstream exited the third quarter with cash and cash equivalents of $103.7 million compared with $48.2 million at the end of 2013. Long-term debt and capital lease obligations were $8,661.1 million compared with $8,622.2 million at the end of 2013. The debt-to-capitalization ratio, at the end of the reported quarter was 0.95 against 0.91 at the end of 2013.

During the third quarter of 2014, Windstream generated $431 million of cash from operations compared with $448.1 million in the year-ago quarter. Free cash flow, in the reported quarter was $237.1 million against $254.3 million in the prior-year quarter.

Outlook

For fiscal 2014, the company expects total revenue to range between a 2.5% fall and a 1% rise over the 2013 number. Windstream anticipates capital expenditures in the range of $800–$850 million, and adjusted free cash flow of $775–$885 million, which would result in a dividend pay-out ratio ranging from 68% to 78%.

Zacks Rank

Windstream currently carries a Zacks Rank #4 (Sell). However, some better ranked companies in the same industry include Inteliquent Inc. (IQNT), RF Micro Devices Inc. (RFMD) and Telenav Inc. (TNAV). All three stocks currently sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on WIN
Read the Full Research Report on RFMD
Read the Full Research Report on IQNT
Read the Full Research Report on TNAV


Zacks Investment Research