Tuesday 28 February 2017 by FIIG Research Trade opportunities

US Company updates – CenturyLink, Frontier Communications, Hertz, Kindred, and McDermott

The US is in the middle of its reporting season. We summarise the results, but please note that most US companies are not covered by full research

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New US DirectBonds have been a favoured trade over the last few months. Many have reported in the last few days and we briefly cover the results below. During the US trading day (overnight in Australia), prices of the bonds often move as a result of some of the announcements and can take a few days to stabilise. As such, we quote relatively wide bid/ offer prices to allow for the volatility.

It’s worth noting that we only provide ‘light’ research on the names and so make no recommendation whether to buy, sell or hold individual bonds.

CenturyLink

Full year results were below company expectations, primarily due to lower strategic revenue growth.

Key points to note:

  • Operating revenues decreased to US$17.5bn from US$17.9bn in 2015 driven by lower voice, low bandwidth data services and data integration revenues. These revenue declines were partially offset by increases in strategic revenues, resulting from increased business customer demand for high bandwidth data services, along with growth in broadband and CenturyLink PrismTM TV revenues
  • Operating income decreased to US$2.3bn from US$2.6bn in 2015
  • Operating cash flow, excluding special items, was US$6.5bn in 2016 compared to US$7.0bn in 2015. The operating cash flow decline was driven by the decline in operating revenues
  • Net income and diluted earnings per share (EPS) were US$626m and US$1.16, respectively, for 2016, compared to US$878m and US$1.58, respectively, for 2015

Bid/ offer prices for CenturyLink bonds are:

  • April 2025: 98.25/100.25
  • September 2039: 91.00/94.00

The 2025 factsheet is available hereExternal link - opens in a new window and 2039 factsheet here.External link - opens in a new window

Frontier Communications

Dan McCarthy, President and CEO, stated, "During the quarter we made significant progress in positioning our company to deliver a better customer experience and improved financial performance, with greater financial flexibility. Our reorganization into separate Commercial and Consumer business units will result in a more customer-centric approach, while reducing expenses and enabling more efficient capital deployment.

Other key points:

  • Frontier Communications reported adjusted EBITDA of US$966m and a net loss of US$80m in the fourth quarter
  • Full year adjusted free cashflow is US$921m, with full year net cash provided by operating activities of US$1.66bn
  • Results for 4Q16 were impacted by resolution of non paying acquired CTF accounts
  • Improved trend in broadband across both Legacy and CTF markets, excluding impact of non paying account resolution
  • Increased annualised cost synergy target to US$1.6bn, with US$1.25bn to be realised by end of 1Q17, and US$1.6bn by end of 2Q18
  • Amended April 2021 term loan and revolver to provide more flexible terms, as well as an upsized and extended revolver 
  • Board of directors approved and will recommend to stockholders a reverse stock split
  • Dividend payout ratio of 52% in 2016

For the full year 2017, Frontier expects:

  • Adjusted free cashflow – US$800m to US$1.0bn
  • Capital expenditures – US$1.0bn to US$1.25bn
  • Integration – operating expense less than US$50m
  • Capital expenditures less than US$50m
  • Cash taxes – US$0 to US$50m

Bid/ offer prices for Frontier Communications bonds are:

  • 15 June 2025 call: 102.25/104.50
  • 15 January 2023: 93.00/95.00

For more details, please see the press release here.External link - opens in a new window

The 2025 factsheet is available hereExternal link - opens in a new window and 2023 factsheet here.External link - opens in a new window

Hertz

Hertz reported a wider than expected loss for the quarter from continuing operations of US$438m, including US$254m of impairment charges compared to a net loss of US$37m for 4Q15.

  • For the full year 2016, Hertz Global reported net loss from continuing operations ofUS$474m, orUS$5.65per diluted share, including full-year impairment charges ofUS$285m, versus net income from continuing operations ofUS$115m, orUS$1.26per diluted share, for 2015
  • Total revenues for 2016 wereUS$8.8bn, a decrease of 2% fromUS$9.0bnfor 2015.
  • On an adjusted basis, the Company reported net income for the full year ofUS$41m, orUS$0.49per diluted share, compared with adjusted net income ofUS$205m, orUS$2.25per diluted share, for the same period last year.
  • Adjusted corporate EBITDA for 2016 wasUS$553m, versusUS$858mfor 2015.

Bid/ offer price for the Hertz bonds is:

  • October 2024: 88.00/90.25

For more details, please see the press release hereExternal link - opens in a new window and factsheet here.External link - opens in a new window

Kindred

Results were in line with company expectations. Full year consolidated revenues were US$7.2bn with a GAAP loss from continuing operations of US$618m. Consolidated revenue for 4Q16 was US$1.75bn, with a GAAP loss from continuing operations of US$6m.

Benjamin Brier, President and CEO commented, “We continue to advance our strategic initiative to divest our skilled nursing center business… we hope to complete this accretive transaction by year end and use the anticipated proceeds of US$100m to US$300m to pay down debt”.

Other key points:

  • Revenue increased 2.3% year over year to US$7.2bn
  • GAAP loss increased from US$1.9m to US$617.5m primarily due to US$740.7m relating to impairments, deferred tax valuation allowance, restructuring, litigation, transaction, debt amendment, business interruption settlements and R&D
  • Core EBITDAR declined 3.1% to US$950.1m
  • GAAP operating cashflows were US$185m compared to US$163.3m for the same period a year ago

For the 2017 year, Kindred expects:

  • Annual revenues of US$7.2bn, in the range of US$7.1bn to US$7.3bn
  • Core EBITDAR of US$930m, in the range of US$910m to US$930m
  • Core diluted EPS from continuing operations of US$0.55, with a range of US$0.40 to US$0.70

Bid/ offer price for the Kindred bond is:

  • January 2023: 96.00/98.00

For more details, please see the press release hereExternal link - opens in a new window and factsheet here.External link - opens in a new window

McDermott International

David Dickson, President and CEO commented, “I am extremely pleased to report a profitable full year 2016, despite the prolonged downturn.  Our 2016 operational and financial performance is a direct reflection of the changes made over the past three years.  The fourth quarter was an excellent quarter operationally, with strong order intake of US$1bn and ending backlog of US$4.3bn.  Unfortunately, net income ended in a slight loss due to an increase in the estimated costs on our INPEX Ichthys project in Australia”.

Key points:

  • Net income attributable to McDermott stockholders – in accordance with GAAP – for the full year of 2016 was US$34.1m, compared to a net loss of US$18.0m for the full year of 2015
  • Revenues were US$2.63bn for the full year of 2016, a decrease of US$434.3m, compared to US$3.07bn of 2015 revenues
  • Operating income for the full year of 2016 was US$142.3m, or an operating margin of 5.4%, compared to US$112.7m, or an operating margin of 3.7%, for the comparable 2015 period. Operating income for the full year of 2016 was primarily driven by marine activity on the INPEX Ichthys, Saudi Aramco’s LTA II, Marjan power system replacement, and 12 Jackets projects, as well as a pipeline repair project in the Middle East
  • As of 31 December 2016, the company’s work book backlog was US$4.3bn, compared to US$3.9bn at 30 September 2016
  • Bids outstanding and target projects of approximately US$2.2bn and US$14.4bn, respectively, in its pipeline that it expects will be awarded in the market through to 31 March 2018

Bid/ offer price for the McDermott bond is:

  • May 2021: 103.25/105.25

For more details, please see the press release hereExternal link - opens in a new window and factsheet here.External link - opens in a new window

 

*Note: All pricing indicative and accurate as at 28 February 2017 but subject to change. Please contact your local dealer for more information.


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