Windstream stock slides on $68 million loss, ends dividend for stock buyback program

Windstream Holdings, Inc.’s stock fell more than 20% in early trading Thursday (Aug. 3) after the Little Rock telecom reported a second quarter loss of $68 million and cut the company’s quarterly dividend in favor of new stock buyback program.

News of the company’s second quarter results caused Windstream’s shares to fall to a 52-week low of $2.83 in early trading on the Nasdaq stock exchange. By mid-morning, Windstream’s stock was down 22%, or 82 cents at $2.90 as more than 5.1 million shares traded hands.

For the period ended June 30, the Little Rock broadband provider reported a second quarter net loss of $68 million, or a loss of 37 cents per share, compared to net income of $1.5 million, or one cent per share, in the same period of 2016. Total revenues and sales were $1.49 billion, up 9.6% from year ago results of $1.36 billion.

Wall Street analysts had expected the former Alltel Corp. spinoff to report a second quarter net loss of four cents on revenue of $1.5 billion, according to Thomson Reuters. Windstream President and CEO Tony Thomas said the company deliver “solid” second quarter results.

“Our unique network assets and cloud-based applications have us well positioned to grow market share,” said Thomas. “Additionally, we continue to improve our cost structure and have significant opportunities to further drive down costs through reductions in network interconnection costs, upcoming synergies from the EarthLink and Broadview transactions and initiatives to advance our organizational effectiveness,” he said.

Companywide, Windstream said its ILEC consumer and small business service revenues were $387 million, a decrease of 2% from the same period a year ago, and contribution margin was $212 million compared to $221 million year-over-year.

Wholesale service revenues were $176 million, an increase of 10% year-over-year, and contribution margin was $116 million essentially unchanged from the same period a year ago. Enterprise service revenues were $564 million, a 15% increase from the same period a year ago, and contribution margin was $103 million compared to $88 million year-over-year.

In the company’s CLEC consumer and small business service operations, revenues rose 51% to $189 million, and contribution margin was $72 million compared to $41 million in the same period a year ago.

DIVIDENDS OUT, STOCK BUYBACK IN

In addition, Windstream’s board of directors announced that the company has eliminated its quarterly dividend to shareholders, effective immediately. The board instead authorized Windstream’s management to buy back up to $90 million of the company’s common stock through the first quarter of 2019. The proceeds from the repurchase program will be used to pay down debt, company officials said.

“Our equity is undervalued especially given our improved strategic direction with enhanced product capabilities, management talent additions and anticipated acquisition synergies of $180 million,” Thomas said. “The elimination of the dividend along with the $90 million buyback program and delevering that will also occur will create value for all our stakeholders. This is the right path for our company.”

In a recent telecom conference with Wall Street analysts and investors, Thomas emphasized the company’s stock was undervalued. On May 3, Windstream declared a quarterly dividend of 15 cents per share on the company’s common stock payable to stockholders of record at the end of the second quarter.

Going forward, Windstream updated its previous financial guidance to include the acquisition of Broadview Networks on July 28, 2017. The company expects service revenue similar to 2016 trends and adjusted operating income of between $2.02 billion and $2.04 billion. The Little Rock telecom said it expects capital expenditures between $790 million and $840 million.

Last week, Windstream closed on the acquisition of upstate New York cloud solutions operator Broadview Networks Holdings Inc. in an all-cash deal worth $227.5 million. In the first quarter, Windstream completed its $1.1 billion acquisition of former rival EarthLink Holdings Corp. of Atlanta on Feb. 27.
Company officials said that deal is expected to achieve more than $150 million in annual operating and capital expense synergies within 36 months of closing, an increase of $25 million over its initial estimates.