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Windstream Corporation (WIN - Analyst Report) reported dull fourth quarter and full year 2012 results, hurt by low contributions from voice and long distance units, reduced intrastate access rates along with loss of subscribers.

Quarterly adjusted earnings per share of 11 cents missed the Zacks Consensus Estimate by a penny. However, comparing with the prior-year quarter, the results dropped 42.1% from 19 cents.

Pro forma revenue decreased 2.0% year over year to $1,538.2 million in the fourth quarter and was slightly below our expectation of $1,552.0 million. Total service revenue and Product sales fell 0.9% and 17.7% year over year, respectively.

Adjusted OIBDA (excluding non-cash pension expense, non-cash stock-based compensation and restructuring charges) moved up to $618.5 million in the fourth quarter from $607.3 million in the year-ago quarter.

For full-year 2012, Windstream posted earnings per share of 45 cents (lagging our projection of 49 cents), on revenues of $6,156.3 million (just missing the Zacks Consensus Estimate of $6,185.0 million).

Subscriber Statistics

During the fourth quarter, total access lines, which include voice lines, high-speed Internet and digital television customers, decreased 2.8% year over year to 3.48 million. Voice lines and digital television customers witnessed a year-over-year decline of 4.5% and 4.4%, respectively, while high-speed Internet improved a marginal 0.6%.

Liquidity

Windstream exited 2012 with cash and cash equivalents of $132.0 million compared with $227.0 million in the prior year. Long-term debt and capital lease obligations were $8,114.9 million compared with $8,936.7 million at year-end 2011.

For 2012, the company generated adjusted free cash flow of $767.9 million and capital expenditure was $1,101.2 million.

Guidance

For 2013, management expects to see a 2% decline to 1% growth in total revenue compared with the 2012 levels. Free cash flow is expected to increase 13% to 15% year over year and capital spending will likely be within $800 million and $850 million.

Our Analysis

Looking ahead, we expect Windstream’s strong operational base to drive growth in business and consumer channels with the addition of high-speed Internet customers and enhanced promotional strategies. The company aims to sell additional services to customers to boost its average revenue per unit.

Additionally, bringing in more subscribers and spreading business to various new locations will add a competitive advantage to Windstream’s performance over other industry players such as Frontier Communications (FTR - Analyst Report), Cbeyond Inc. (CBEY - Snapshot Report) and Consolidated Communications Holdings Inc. (CNSL - Snapshot Report).

Windstream currently carries a Zacks Rank #3 (Hold).

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