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Windstream Holdings Inc. (WIN - Analyst Report) reported second-quarter 2014 adjusted earnings per share of 3 cents, lagging the Zacks Consensus Estimate of 8 cents and also lower than 7 cents earned in the year-ago quarter. The disappointing results have led the stock to see the red in the early hours trade on Nasdaq.

Pro forma revenues decreased 2.4% year over year to $1,466 million in the second quarter and also fell short of the Zacks Consensus Estimate of $1,475 million. Total Service revenues fell 27.7%, while Product revenues reduced 8% year over year. Decommissioning legacy circuits by wireless carriers, decline in switched access revenues, lower intrastate access rates, fewer minutes of use and other transport-related network grooming affected the second quarter performance.

Adjusted OIBDA (excluding non-cash pension expense, non-cash stock-based compensation and restructuring charges) was $543.4 million, down 6.5%.

Windstream plans to spin off certain assets into an independent, publicly traded real estate investment trust, which will allow the company to augment network investments, offer improved service and boost shareholder return.

Subscriber Statistics

During the second quarter, total access lines, which include voice lines, high-speed Internet and digital television customers, decreased 5.1% year over year to 3.21 million. On a year-over-year basis, voice lines dropped 6.3% while digital television customers witnessed a decline of 5%. High-speed Internet also fell 3.4%.

Liquidity

Windstream exited second quarter with cash and cash equivalents of $54.8 million compared with $48.2 million in 2013. Long-term debt and capital lease obligations were $8,593.1 million compared with $8,622.2 million at the end of 2013.

The company generated adjusted free cash flow of $314.0 million while adjusted capital expenditure was $205.8 million in the second quarter.

Dividend

The company paid dividends worth $300 million during the first half of 2014.

Outlook

For 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 payout ratio ranging from 68% to 78%.

Our Analysis and Zacks Rank

Windstream has a Zacks Rank #2 (Buy). We believe the company is poised for long-term growth based on its investments in fiber-to-the-tower and broadband networks coupled with proper cost management. Enhancement of its long haul network and expansion of data centers also bode well for the company.

Other Stocks

United States Cellular Corp. (USM - Analyst Report), a subsidiary of Telephone and Data Systems Inc. (TDS - Analyst Report), reported second-quarter 2014 loss per share of 22 cents, wider than the Zacks Consensus Estimate of a loss of 15 cents.

On the other hand, Frontier Communications Corporation (FTR - Analyst Report) reported its second-quarter 2014 adjusted earnings per share of 5 cents, in line with the Zacks Consensus Estimate.

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