Frontier Communications Corp. (FTR - Analyst Report) – a provider of telecommunication services to rural areas – reported dismal fourth-quarter numbers wherein both the top and bottom lines missed the Zacks Consensus Estimate.

The company reported earnings per share of 4 cents, down 42.9% year over year and also below the Zacks Consensus Estimate of 5 cents.  

Frontier Communications Corporation - Earnings Surprise | FindTheBest

Frontier Communications revenues jumped 12.7% year over year to $1,330.3 million. However, the figure missed the consensus mark of $1,343 million. The year-over-year upside was primarily led by increased revenues from voice and data and Internet services.

On a year-over-year basis, voice revenues increased 6.2% to $525.3 million and data and Internet service revenues surged 17.3% to $554.9 million. Further, other revenues registered growth of 57.7% to $121.6 million.

Operating Income

Adjusted operating income in the fourth quarter declined 32.9% year over year to  $173 million. Operating income margin stood at 13.0% compared with 21.8% in the year-ago quarter.

Customer Trends

At the end of fourth-quarter 2014, the number of residential customers jumped 14.3% to 3,214,836 while business subscribers increased 12.5% year over year to 304,736. Customer churn was 1.62% versus 1.67% in the fourth quarter of 2013.

Frontier added 507,223 broadband users in the quarter, taking the total count to 2,373,893 (up 27.2% year over year). As of Dec 31, 2014, video subscribers totaled 586,616 (up 52.2% year over year).

Liquidity

Frontier exited the fourth quarter with $682.1 million of cash and cash equivalents compared with $880 million at end-2013. Long-term debt increased to $9,485.6 million at the end of the quarter from $7,873.7 million at the end of 2013.

In the final quarter of 2014, the company incurred capital expenditure of $159 million for business operations, as against $151 million in the year-ago quarter. Free cash flow was $193.4 million against $248.2 million in the year-ago quarter.

Dividend

The company paid a total of $400.9 million in dividends in 2014, which equals to a payout of 51% of free cash flow generated through the year. This includes dividend payments of $100.2 million in the fourth quarter alone, which equals a payout of 52% of the free cash flow figure.

2015 Guidance

The company expects free cash flow in the range of $785 million to $825 million in 2015. Frontier projects capital expenditure from business operations between $650 million and $700 million.

Our Analysis

We appreciate the various strategic initiatives taken by this Zacks Rank #2 (Buy) company which include new product deployment, broadband expansion, new pricing plans and strategic collaborations. These initiatives helped the company register solid subscriber growth in the fourth quarter along with reduced churn rate.

Stocks that Warrant a Look

Other favorably-ranked stocks in the sector include China Mobile Limited (CHL -Snapshot Report), NTT DOCOMO, Inc. (DCM) and Vodafone Group Public Limited Company (VOD - Analyst Report). All these stocks hold the same Zacks Rank as Frontier Communications.