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Windstream Corporation (WIN - Analyst Report) reported mixed first-quarter 2013 results, reflecting the strength in strategic revenues and expansion of fiber network, partially offset by low contributions from voice and long distance units, reduced intrastate access rates along with subscriber loss.

Quarterly adjusted earnings per share of 10 cents were in-line with the Zacks Consensus Estimate. However, comparing with the prior-year quarter, the results dropped 23.1% from adjusted figure of 13 cents.

Pro forma revenues decreased 2.0% year over year to $1,500.4 million in the first quarter and were below our expectation of $1,526.0 million. Total service revenue and Product sales fell 2.0% and 13.0% year over year, respectively.

Adjusted OIBDA (excluding non-cash pension expense, non-cash stock-based compensation and restructuring charges) was $587.1 million in the first quarter compared with $587.4 million in the year-ago quarter.

Subscriber Statistics

During the first quarter, total access lines, which include voice lines, high-speed Internet and digital television customers, decreased 4.0% year over year to 3.44 million. Voice lines and digital television customers witnessed a year-over-year decline of 5.0% and 4.0%, respectively, while high-speed Internet fell a marginal 1.0%.


Windstream exited the quarter with cash and cash equivalents of $54.4 million compared with $132.0 million as of Dec 31, 2012. Long-term debt and capital lease obligations were $8,108.7 million compared with $8,114.9 million at the end of 2012.

For the quarter, the company generated adjusted free cash flow of $248.0 million and capital expenditure was $234.0 million.

Our Analysis

We remain optimistic on Windstream’s performance based on a lucrative bundle of service offerings, an expanding customer base and various strategic measures. The company, apart from reaping synergies from the PAETEC acquisition, is concentrating on opening additional data centers, growing channel business and providing superior services to its customers.

However, we remain concerned about the competitive pressures from other industry players such as Frontier Communications (FTR - Analyst Report), Cbeyond Inc. and Consolidated Communications Holdings Inc. (CNSL - Snapshot Report), constant upgrades in the technological scenario as well as the continued access-line erosion. Windstream currently carries a Zacks Rank #3 (Hold).

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