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Windstream Corporation (WIN - Analyst Report) has reported first quarter 2012 adjusted earnings per share of 13 cents, missing the Zacks Consensus Estimate of 16 cents. Adjusted earnings for the quarter shot up 116.7% from the year-ago earnings of 6 cents.
Adjusted earnings exclude $14 million in merger and integration expenses and a gain of approximately $1 million related to the early debt retirement.
Including these costs, the company reported earnings per share of 11 cents, up 83% year-over-year.
Pro forma revenue decreased 0.5% year-over-year to $1,545.2 million in the first quarter, and missed our expectation of $1,558 million. On a GAAP basis, revenue grew 51% year-over-year.
Adjusted OIBDA (excluding non-cash pension expense, non-cash stock-based compensation and restructuring charges) dropped 1.6% year-over-year to stand at $594.3 million in the first quarter.
During the first quarter, total access lines, which include voice lines, high-speed Internet and digital television customers, dropped 3.5% year-over-year to 3.16 million. Windstream lost 28,600 access lines. Voice lines declined 4.3% year-over-year to $2.9 million.
Windstream added as many as 8,500 new high-speed Internet customers, bringing its total customer base to approximately 1.4 million (up 4% year over year). Video customers decreased to 445,100 from 445,800
Windstream exited the first quarter with cash and cash equivalents of $64.2 million, up from $35.8 million in the prior-year quarter. Long-term debt reduced to $8.8 billion from $8.9 billion at the end of 2011.
The company generated adjusted free cash flow of $352 million. Adjusted capital expenditure grew 8.1% year-over-year to $223 million in the first quarter. The company completed spectrum sale and received $57 million in the first quarter.
The company Board of directors announced a quarterly dividend of 25 cents payable on July 16 to stockholders of record as of June 29.
We believe Windstream remains poised to gain from high-speed Internet services that benefit from increased market traction. Additionally, the company’s latest acquisition, PAETEC, a leading broadband service provider, will also be aided by expanding service offerings, increasing wireless data backhaul services and offer of managed services and cloud computing.
Further, Windstream’s deleveraging initiatives and refinancing activities are expected to generate healthy cash flows, subsequently attracting investors through high dividend payouts.
However, we remain on the sidelines due to competitive pressures from peers such as AT&T Inc. (T - Analyst Report) and Verizon Communication (VZ - Analyst Report), a highly leveraged balance sheet and continued access-line erosion. These would partially be offset by a high dividend yield and broadband opportunities.
We are currently maintaining our long-term Neutral recommendation on Windstream, supported by a Zacks #3 (Hold) Rank.