FTR - Frontier Communications

[cwericb]

"The population of the rural area's FTR services in declining, so there isn't much hope for long-term growth in their revenue."

 

There is no question that rural population is declining. But one would think that these guys would have some sort of long term plan to offset that, either that or they don't think it will have that much of an adverse effect on them. Anyone know if they have plans in this regard?

[ourkid8]

Hi, Please refer to my note above on July 14th, 2011.  FTR's current plan:  Job 1 - Integration, Job 2 - Increase product suites which will come shortly after the integration...

 

 

"The population of the rural area's FTR services in declining, so there isn't much hope for long-term growth in their revenue."

 

There is no question that rural population is declining. But one would think that these guys would have some sort of long term plan to offset that, either that or they don't think it will have that much of an adverse effect on them. Anyone know if they have plans in this regard?

[cwericb]

Thanks. Had skimmed that and it hadn't sunk in. Bought more yesterday at 7.50 and may pick up some more over the next few days if the markets tank.

[Myth465]

Need to review the Q and call but this may be a fat pitch if nothing has materially changed. Dont know if I have the ammo or inclination to swing....

[cwericb]

Just bought a little more. It must be me that's driving the price down.

 

If they manage to keep the dividend at this level it works out to just about 11%

[biaggio]

http://seekingalpha.com/article/284282-frontier-communications-ceo-discusses-q2-2011-results-earnings-call-transcript?part=qanda

 

Earnings call.

[biaggio]

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTAyMzQwfENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

Presentation of call.

 

What did others think? I did not understand what the sell off in the early morning was all about.

 

They seem to be executing on plan(from presentation):

 

 

Raised synergy targets to $600 million by year-end 2012

and $475-$500 million by year-end 2011

●

 

Generated incremental synergies of $14 million including

initial savings from backbone migration; $32 million

overall cost reduction in the quarter

●

 

Grew adjusted EBITDA by 1.2% sequentially; EBITDA

margin expanded 141 bps to 48%

●

 

Broadband availability increased by 142,000 new homes

●

 

Grew DSL broadband subscribers by 12,300; had a net

loss of 4,900 on FiOS data

 

FCF =$1036 million for trailing 12 m

 

Negatives that I could see

 

-was that they had more Capex for the quarter than what was expected.

-Increasing spending on integration-”integration expense + Capex “ estimated or guided to be $120 and $70million for 2011 which is going to accelerate  the integration of remaining states (they are going to do in 2011 what was planned for later in 2012, 2013, unless I interpreted it wrong)

-they only paid down LTD by $77 million (I was  hoping it would be more)

-apparently revenue was below what analyst predicted

 

I like the 10% dividend.

 

Risk is the high debt, integration risk, and the  fact that a large portion of their revenue comes from a declining business (which hopefully will be balanced with new products + services sold to existing customers).

 

 

 

[cwericb]

Interesting article from Motley Fool on FTR dividends. I found the article a little confusing until I read the authors note at the bottom.

 

Is This Huge Dividend Still Safe?

 

By Anders Bylund

August 3, 2011

 

Dividend champion Frontier Communications (NYSE: FTR  ) has gone through some serious changes lately.

 

After completing a bet-the-farm acquisition of rural accounts from Verizon (NYSE: VZ  ) , Frontier set about upgrading the new assets in order to comply with government-imposed conditions for the deal. The company has been pumping a huge part of its cash flows into that juicy 10% dividend yield, even as it rolls out expensive infrastructure upgrades on the old Verizon stuff.

 

And so we arrive at this morning's second-quarter report. Sales more than doubled year over year to $1.3 billion, while earnings fell by 8% to $32 million, or by 45% to $0.06 per share when you account for the massive dilution that came with the Verizon deal a year ago. All of this was in line with Wall Street estimates, but investors weren't impressed; shares swooned as much as 8.1% on the news before climbing back to a less preposterous fall.

 

I don't quite see why you'd hate this report. CEO Maggie Wilderotter noted that cost savings from the integration of Old Verizon and New Frontier is running ahead of schedule, and she increased her annualized savings target from $550 million to $600 million. With $231 million of free cash flow in the quarter, the dividend payout ratio landed at 77% -- within spitting distance of last quarter's 74% payout. Let me remind you here that the astronomical payouts are expected to trail off in coming quarters as capital expense needs decrease.

 

Frontier's dividends are more generous than those of fellow telecoms France Telecom (NYSE: FTE  ) , Windstream (Nasdaq: WIN  ) , or AT&T (NYSE: T  ) , and are amplified if you buy in during temporary drops like this morning's. I happen to have chosen France Telecom as my own income-payer in this sector, but could easily have gone with Frontier, too.

 

To see 13 more high-yielding stock ideas for your portfolio, check out this free report on top-notch dividends. These stocks could be your best bet to beat inflation in years to come as bonds and savings accounts yield mere pennies on the dollar.

 

--------------------------------------------------------------------------------------------------------

 

Just to clarify, I am absolutely not saying that Frontier is about to cut its dividend payouts. What the company actually plans to lower is the payout ratio, or the percentage of free cash flows that's paid out as dividends. It's supposed to happen by way of lower capital expenses, meaning higher cash flows, so the same dividend expense becomes a smaller portion of the cash use. I got emails worrying about this, and I apologize if it wasn't made clear in the article.

 

Anders

[biaggio]

Investor PresentationSeptember 2011

 

http://www.sec.gov/Archives/edgar/data/20520/000002052011000048/investpresentsept11.htm

 

nothing new I dont believe

[cwericb]

Does anyone know how the dividends are treated tax wise for Canadian shareholders? I thought I read somewhere that there was a certain US tax form that had to be completed.

[finetrader]

this article explains it well:

 

Cheers!

 

http://www.theglobeandmail.com/globe-investor/investor-education/ask-an-adviser/will-the-taxman-bite-if-i-earn-us-dividends-in-a-tfsa/article2152578/

[cwericb]

Thanks for the info Finetrader. I had seen that and forgotten where it was.

[AZ_Value]

I own FTR LEAPS, and good lord they are not for the faint of heart  :)

 

The market mayhem of the past few weeks/months has contributed to some "interesting" times owning these. My view on the company hasn't changed and I like management's strategy given the limited (or nonexistent some would argue) growth prospects but Good God the volatility.

I wish there was a way for me to segregate some securities in my account so that I don't see them every time I log on.

Just wanted to vent a little  :D

[Myth465]

I bought more leaps yesterday. $5 2013s. My timing as usual sucks....

 

It seems as though they are moving in the right direction, not sure why FTR is being thrown out but so is everything else. LOL we have the same wish, at this point though I am becoming immune to the drops.

[biaggio]

long rates dropped today. You would think that high yielding securities would have performed well.

 

Folks selling must not believe that they will continue to earn their dividend.

 

I can t imagine that they would sell FTR with a yield 10% to buy treasury securities at 1.8% for 10 year note, LOL

 

Owning the stock and least collecting the dividend is much easier than experiencing the volatility especially when it is going in the wrong direction. Normally I would like to average down some more but I would like to keep this as a relatively a small part of my holdings because of all the debt they hold.

[S2S]

Folks, FTR sold off today for a reason: the company lowered 2011 FCF guidance by $75M (~6.5%) at a sell-side conference. Some of the headwind is one-time (incremental expenses due to Hurricane Irene), but there ARE disconcerting signs: worse-than-expected results at acquired markets (read: oops, maybe those assets aren't quite what management thought they were) and issues at the 4 states where billing systems are being converted from VZ's to FTR's. The latter means the fees for using VZ's infrastructure at the remaining 9 states could be in place longer than the bulls might have thought.

[AZ_Value]

Crap. Any link to what was said/presented?

[S2S]

Crap. Any link to what was said/presented?

 

http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=66508&eventID=4198418

[AZ_Value]

Thanks. Was just about to check their website. I'll listen to the webcast tonight.

I hope there's nothing structurally wrong with their VZ acquisitions as I was definitely sold on the "FTR is not Fairpoint Communications" talk and this is just short term stuff, i.e. maybe buying opportunity but just wishful thinking right now, we'll see

Thanks again.

 

[Myth465]

I listened the presentation yesterday. We sold off yesterday and I believe that was the reason, perhaps the news is still working its way around. I liked the explanation and figure given whats going on it makes sense. At this current yield the shareprice seems irrational but perhaps people believe that the dividend is unsustainable. We will see.

 

Regarding the 75 million its unfortunate, but I liked that they moved up the conversions and increased the synergy expectations.

[stahleyp]

Do you guys know how much Wilderotter owns?

[biaggio]

Do you guys know how much Wilderotter owns?

 

I looked at this a few days ago.

 

http://sec.gov/Archives/edgar/data/20520/000093041311002279/c64663_def14a.htm

 

Owns ~ 2.2 million + ~ $11 million of options as of the date of the DEFA  form

[stahleyp]

Do you guys know how much Wilderotter owns?

 

I looked at this a few days ago.

 

http://sec.gov/Archives/edgar/data/20520/000093041311002279/c64663_def14a.htm

 

Owns ~ 2.2 million + ~ $11 million of options as of the date of the DEFA  form

 

ahh, thanks! :)

[ourkid8]

http://finance.yahoo.com/news/Frontier-Communications-Board-bw-122785215.html?x=0&.v=1

 

I have been continuining to add to my position via DRIP and it's nice that the BOD affirmed the Annual Dividend Policy!  (current dividend yield of 13.2%) 

 

Management has mentioned numerous times, the cost savings will be seen in the back-end of 2012 once the system conversion has taken place.  Let's hope we can continue to drive stronger broadband unit growth to offset the wireline losses.

 

Thanks,

 

S

[dwy000]

Given that juicy dividend I soooo want to believe this is sustainable and a screaming buy - even though it is recognized to be in a decaying business line.

 

But I just can't get myself to pull the trigger until the system transition is fully completed.  If you look at Verizon's history of spinoffs, the track record is just dismal (for the spinoff, great for Verizon) and it's almost always due to system transition issues.  In the past 5 or so years they have spun off:

   

    Hawaiian Telecom - filed for bankruptcy largely due to system transition issues;

    Idearc - filed for bankruptcy (whole different set of problems there);

    New England assets to Fairpoint - Fairpoint filed for bankruptcy and is still having system issues;

    Other wireline to Frontier - To Be Continued.

 

It's gotten to the point where if Frontier hits it's revenue/cash flow numbers I see that as a huge win because I'm always expecting to wake up to the headline that it has taken down its projections again. 

 

Maybe in 2012 when things stabilize.  Until then I'll just kick myself every time it goes ex-dividend.