Frontier's Middling Third Quarter

Frontier Communications (Nasdaq: FTR  ) chairman and CEO Maggie Wilderotter said the company had a "milestone third quarter" in the intro to its third-quarter earnings report.

"Milestone" normally means passing a desirable goal. However, in this case, it refers to losing revenue at a slower pace. Revenue for the third quarter was $1.252 billion, compared to the previous quarter's $1.259 billion, compared to the 2011 third quarter revenue of $1.291 billion.

Revenue losses came about from its net departing 47,000 residential customers during the quarter. But again, compared to the same period last year, which saw a net drop of 77,000, that's... better.

Business revenue did improve over last quarter's, $581 million to $577 million, but did not quite reach the $582 million of Q3 2011.

But wait, there was actually improvement in the bottom line. Net profit rose, $67 million compared to last quarter's $18 million, and $20.4 million for last year's third quarter. Earnings were $0.07 per share.

Free cash flow has been on the decline, down to $215 million from last quarter's $285 million. That may be why, for a company that has prided itself on its generous dividend -- one which still provides a tempting 9% yield, even after being cut in half for 2012 -- the word "dividend" came up only once in the company's third quarter earnings conference call during the presentation. Curiously, dividends were not asked about at all during the Q&A.

For the dividend-curious -- and if one is a Frontier investor, that is probably a given -- the dividend-to-free-cash-flow ratio is 46%, going by Frontier's non-GAAP reconciliation method.

For the coming quarter, Frontier will be counting on a promotion for new and existing customers who sign up for double or triple play services: Apple gift cards, ranging in value from $100 to $500.

Maybe that will help. The company blamed its not-so-bright third-quarter performance on a lack of promotions.

When it comes to dividend yields, you won't find many higher than Frontier Communications. While its juicy dividend is tempting, every Frontier investor has to understand that it's not a sure thing. A huge acquisition has transformed the company forever. Will the move bear fruit, or are investors destined for another disappointing dividend cut? In this premium research report on Frontier Communications, we walk you through all of the key opportunities and threats facing the company. Better yet, you'll receive a full year of updates to boot. Click here to learn more.


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