Windstream Corp. (WIN), a leading rural telecom carrier, reported operating results for the third quarter with adjusted earnings per share of 24 cents, exceeding the Zacks Consensus Estimate of 21 cents. Adjusted EPS excludes one-time items such as restructuring charges, merger and integration costs and non-cash pension expense.
Reported net income of $80 million (18 cents a share) reflects a 24% year-over-year decline on account of lower revenues, which declined 8% year over year to $734 million.  Service revenues fell 5% year over year to $704.9 million while product revenues declined 44% to $29.4 million. Average monthly service revenue per customer remained stable year over year at $79.99. Operating income declined 17% year over year to $225.4 million.
Windstream continues to experience steady decline in its fixed-line business given the rapid customer migration to cellular services. Total access lines declined by roughly 27,000 lines in the quarter to reach approximately 2.93 million lines, down 5.2% year over year. This was, however, partly offset by net addition of 26,000 high-speed Internet customers, bringing the total broadband customer base to approximately 1.05 million (up 9% year over year).
Momentum for digital TV business continues with more than 11,000 new customers added during the quarter. Windstream’s video subscriber base reached roughly 323,000, representing 18% penetration of primary residential lines. 
The company generated $242 million cash from operation in the quarter and spent $67 million in capital expenditure, resulting in a free cash flow of $175 million. Windstream exited the quarter with $290 million in cash and cash equivalents and $5.2 billion in total debt.
Windstream remains committed to its share repurchase initiatives leveraging healthy free cash flow generated through its ongoing cost-cutting measures. The company repurchased 8.9 million shares in the third quarter, returning roughly $89 million to its shareholders. Approximately $80 million remaining under the current $400 million share buyback authorization which is set to expire at the end of 2009.
Windstream continues to acquire smaller rural carriers to expand its customer base. The company has received unanimous approval from Pennsylvania Public Utilities Commission for its impending acquisition of rural phone and Internet service operator D&E Communications (DECC) for $159 million. The acquisition will strengthen Windstream’s foothold in Pennsylvania, providing 165,000 access lines and 44,000 high-speed Internet customers.

To boost its high-speed Internet business, Windstream is buying privately held regional competitive local exchange carrier NuVox Inc for roughly $643 million. The acquisition will strengthen Windstream’s presence across the Southeast and Midwest states, where NuVox has a strong market presence. The deal will also provide meaningful cost synergies and 90,000 new business customers across 16 states.

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