Windstream shares plunged more than 18 percent Thursday morning after the company declared a $68 million net loss and announced plans to scrap its quarterly dividend for shareholders, effective immediately.
The company says the latter move is part of a new capital allocation strategy and share buyback program that aims to help reduce the company’s debt.
“Our equity is undervalued especially given our improved strategic direction with enhanced product capabilities, management talent additions, and anticipated acquisition synergies of $180 million,” Windstream CEO Tony Thomas comments. “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.”
The move follows a second quarter report in which Windstream posted revenue of $1.49 billion and operating income of $107 million. Revenue was up 10 percent year over year but missed Wall Street expectations by some $10 million. Operating income was down 31 percent from $155 million in the same quarter last year. The net loss of $68 million – or 37 cents per share, compares to a net income of $1.5 million in the same period of 2016.
“WIN reported light Q2 results that missed our estimates and Street consensus across the board. Broadband and enterprise subscriber losses accelerated in Q2, and service revenue declined both seq. and y/y. While fundamentals were light, the big news is the change in capital allocation strategy. WIN cut the dividend immediately while authorizing a share repurchase plan,” Wells Fargo Senior Analyst Jennifer Fritzsche summarizes. “We believe it is the right decision at this time. WIN can use the ~$100MM to de-lever, expedite its capital investment in building out fiber, and buy back shares.”
Despite the rough results, Thomas indicates there’s light on the horizon.
Windstream has “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 says.