Frontier (FTR) announced fourth quarter results and a reduction in the yearly dividend from $0.75 to $0.40. The size of the cut was a surprise to many considering up until the Goldman Sachs conference on September 20 management reiterated the dividend was safe and secure and saw no headwinds to change their commitment.
We noted the following in our last article:
the ttm FCF including integration cost is dangerously close to the dividend line in Q3. It must be reversed starting with Q4 by meeting or exceeding guidance. 2012 FCF guidance should meet or exceed the original 2011 guidance… FTR is at a tipping point that should be decided one way or the other when Q4 earnings are released and full 2012 guidance is announced.
So how did they do? Free cash flow did reverse in Q4, including integration costs.
Free cash flow started trending up; leaving a cushion as it relates to the previous dividend. So why the huge cut? The reason is because this is an anomaly. Despite the upward trend, FCF (free cash flow) will start trending down per management. The 2012 guidance is shown below compared to forecast and actual 2011 numbers.