Windstream Reports $68M 2Q Loss, Ends Quarterly Dividend

Windstream Reports $68M 2Q Loss, Ends Quarterly Dividend
Windstream CEO Tony Thomas

Windstream Holdings Inc. of Little Rock on Thursday reported a $68 million second-quarter loss and said it would end its quarterly dividend to shareholders as part of a new capital allocation strategy.

The telecommunications and networking company reported quarterly revenue of $1.49 billion, up 10 percent from the same quarter last year. Operating income was $107 million, down 31 percent from $155 million in the same period a year ago.

Its $68 million net loss, or a loss of 37 cents per share, compared with net income of $1.5 million, or 1 cent per share, a year ago.

"Windstream delivered solid second quarter results, highlighted by sequential growth in Adjusted OIBDAR," CEO Tony Thomas said in a news release. "Our unique network assets and cloud-based applications have us well positioned to grow market share. 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."

Windstream completed its purchase of EarthLink Holdings Corp. of Atlanta in February. The company has said the $1.1 billion all-stock deal will expand Windstream's national fiber footprint and lead to enhanced products and services.

Windstream closed on its $225 million purchase of Broadview Broadview Networks Holdings Inc. of Rye Brook, New York, last month. The private, cloud-based unified communications services provider to small and medium-sized businesses offers a suite of services under the OfficeSuite UC brand.

End of the Dividend

In a separate news release, the company said it would end its quarterly shareholder dividend immediately and authorized the repurchase of up to $90 million of the company's common stock through the first quarter of 2019. 

Buying back shares of stock can improve a company's stock price.

"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."

Investors sold Windstream shares on the news; Windstream's stock price (NYSE: WIN) dropped by 29 percent to $2.63 at noon. 

Cowen analysts wrote that the company, along with CenturyLink and Frontier, had "endured the worst three consecutive quarters in industry history, with shares plummeting" an average of 20 to 24 percent.

The analysts said the telecom companies were suffering from "broader fundamental erosion, specifically outsized legacy service declines and muted strategic growth against aggressive cable operators" and company specific-issues. 

The Cowen analysts were also optimistic about Windstream's future stability and suggested that the others would "likely be observing where WIN's post-washout valuation materializes as these telecos could re-evaluate ther own respective capital allocation plans."

In a research note, Goldman Sachs analysts said that the stock repurchase would cost Windstream $54 million per year, less than its prior annual dividend payments of $115 million. 

Morgan Stanley, in another note, said Windstream had previously implemented a $75 million repurchase program in August 2015 and completed that in February 2016, having bought back 12.6 million shares at an average price of $5.94.

Barron's on Thursday reported that Wells Fargo analyst Jennifer Fritzsche thought this was a good move for the company as the market was already anticipating a revisitation to its dividend strategy. "We believe it is the right decision at this time. WIN can use the [$90 million] to de-lever, expedite its capital investment in building out fiber, and buy back shares."

Barron's also said, if the company hadn't eliminated the dividend, the yield would have been 21 percent at Thursday's noon share price. It would have been 16 percent at Wednesday's closing price.

Several analysts said Windstream ending the dividend was not surprising. 

For years after its spinoff from Alltel Corp., the company enticed investors by offering them a $1-per-share dividend that some analysts in 2013 questioned as unsustainable.

In 2014, Windstream reduced its dividend when it spun off most of its physical assets into a separate, publicly traded real estate investment trust, now known as Uniti Group Inc. Windstream said it would pay a 10-cents-per-share dividend, with the REIT paying 60 cents, for a total of 70 cents per year.

In May, Windstream's board of directors declared a quarterly dividend of 15 cents per share payable July 17, to stockholders of record as of June 30. 

And on Wednesday, Uniti Group declared a quarterly cash dividend of 60 cents per share, payable on Oct. 13 to stockholders of record on Sept. 29.

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