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Why Is Frontier Communications (FTR) Down 16.1% Since the Last Earnings Report?

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More than a month has gone by since the last earnings report for Frontier Communications Corporation (FTR - Free Report) . Shares have lost about 16.1% in that time frame.

Will the recent negative trend continue leading up to the stock's next earnings release, or is its due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Frontier Communications Q2 Loss Narrower than Expected

Frontier Communications’ second-quarter 2017 net loss (on a GAAP basis) was $715 million or $9.21 per share compared with a net loss of $80 million or $1.05 per share in the prior-year quarter. However, quarterly adjusted (excluding special items) loss per share was $1.10, narrower than the Zacks Consensus Estimate of a loss of $1.12.

Revenue

Total revenue decreased 11.7% year over year to $2,304 million, lagging the Zacks Consensus Estimate of $2308.7 million. Segment-wise, Customer revenues totaled $2,106 million, down 11.5% year over year while Switched access and subsidy revenues were $198 million, down 12.8% year over year.

Within the Customer segment, voice services revenues totaled $724 million, down 13.4%, data and internet services revenues came in at $974 million, down 7.1%, video revenues plunged 21.5% to $329 million and Other revenues totaled $79 million, up 1.3% year over year.

Category-wise, Consumer revenues were $1,124 million, down 15.6%, Commercial revenues came in at $982 million, down 6.4%. Switched access and subsidy revenues were $198 million, down 12.8% year over year.

Operating Metrics

Operating loss in the second quarter was $394 million against an operating income of $311 million in the prior-year quarter. Quarterly operating expenses were $2,698 million, up 17.5% year over year. Quarterly adjusted EBITDA was $906 million, down 12.2% year over year. Adjusted EBITDA margin was 39.3% compared with 39.6% in the prior-year quarter.

Cash Flow

In the second quarter of 2017, Frontier Communications generated $529 million of cash from operations compared with $693 million in the prior-year quarter. Free cash flow in the reported quarter was $205 million compared with $250 million in the year-ago quarter.

Liquidity

Frontier Communications exited the second quarter of 2017 with $387 million of cash and cash equivalents compared with $522 million at 2016-end. Total debt at the end of the reported quarter was $17,846 million compared with $17,923 million at the end of 2016. At the end of second-quarter 2017, the debt-to-capitalization ratio was 0.83 compared with 0.79 at the end of 2016. 

Subscriber Statistics

As of Jun 30, 2017, the number of consumer segment customers decreased 11.6% year-over-year to 4,585,000. The average monthly consumer revenue per customer was $80.38, up 0.2% sequentially. Consumer segment customer monthly churn was 2.24% compared with 1.91% in the year-ago quarter. Commercial segment customers decreased 10.4%, year-over-year to 473,000. Frontier Communications had 4,063,000 high-speed broadband subscribers, down 8.9% and 1,007,000 video customers, down 22.8% year over year.

Outlook

For 2017, Frontier Communications expects adjusted free cash flow in the range of $800–$900 million. Capital expenditures will be in the $1,100–$1,200 million range.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an downward trend in fresh estimates. There have been two revisions lower for the current quarter.

VGM Scores

At this time, Frontier Communications' stock has a nice Growth score of B, though it is lagging a lot on the momentum front with an D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.




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