Moody’s Investors Service, the credit ratings agency, on Friday downgraded certain ratings of Windstream after the company announced a program to repurchase up to $75 million in shares.
The announced share-repurchase program coincided with Windstream’s release of its second-quarter results. The company (NASDAQ: WIN) posted a net loss of $111 million, or $1.13 per share, on revenues and sales of $1.42 billion. The results fared worse than Windstream’s year-ago profit of $14 million, or 13 cents per share, on revenues and sales of $1.47 billion.
New York-based Moody said it was downgrading Windstream due to the company’s “capital allocation policy,” including its share repurchase program.
“Although the amount of share repurchase is relatively modest, it represents a departure from Moody’s expectation that Windstream would exhibit discipline towards its stated goal of debt repayment,” the credit ratings agency said in a note. “In addition, the company’s weak operating performance and free cash flow profile imply an ongoing inability to reduce leverage.”
As of June 30, 2015, Windstream had $5.6 billion in long-term debt outstanding.
Windstream Chief Executive Tony Thomas explained the reason for the stock buyback program. “Windstream stock is significantly undervalued and a share buyback is an attractive investment and an efficient way to return capital to shareholders,” he said.
Wall Street wasn’t unkind to Windstream based on the report; in fact, the company’s share price has risen more than 25 percent just since July 24, up to $5.72 as of 2:30 p.m. ET. But that’s a far cry from the $14 trades it was garnering in February, its high point for the year.
In the second quarter, Windstream’s enterprise revenues and sales rose to $485.2 million from $468.7 million, but revenues and sales in its small business ($253.8 million), consumer ($313.8 million) and carrier ($172.3 million) operations all declined from the year-ago period. In the second quarter of 2014, Windstream posted small business revenues and sales of $279.9 million, $316.8 million in its consumer operations, and $183.3 million in its carrier division. Regulatory and other revenues and sales declined to $152.1 million from $169 million in the year-ago period.
Little Rock, Arkansas-based Windstream still had a reason to be positive about its revenue trajectory. Second-quarter revenues and sales grew sequentially to $1.42 billion from $1.41 billion in the previous quarter. The company said its year-to-date revenues ($2.84 billion) were within its annual guidance range.