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Level 3 Communications (LVLT) Beats on Earnings in Q2

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Level 3 Communications Inc. reported mixed financial results in the second quarter of 2016 wherein the top line missed the Zacks Consensus Estimate while the bottom line outpaced the same.

Level 3 Communications operates in a highly competitive enterprise communications market. This Zacks Rank #2 (Buy) company has to compete with telecom giants like Verizon Communications Inc. (VZ - Free Report) and AT&T Inc. (T - Free Report) in North America and with Telefonica, Orange, BT Group and America Movil SAB (AMX - Free Report) in Europe and Latin America.

On a GAAP basis, net income in the reported quarter was $149 million, or 42 cents per share versus a net loss of $13 million or a loss of 4 cents per share in the second quarter of 2015. Moreover, quarterly adjusted earnings per share of 52 cents were well ahead of the Zacks Consensus Estimate of 46 cents.

Second quarter total revenue was $2,056 million, down 0.2% year over year and short of the Zacks Consensus Estimate of $2,084 million.

Segment-wise, Core Network Services (CNS) revenues came in at $1,956 million, up 0.7% year over year. Wholesale Voice Services and Other revenues totaled $100 million, down 16% year over year.

Geographically, North America generated $1,605 million in CNS revenues, up 4% year over year. Europe, the Middle East and Africa accounted for $191 million of revenues at CNS, down 7% while Latin America contributed $160 million, down 2%.

Total operating expenses in the reported quarter were $1,682 million, down 0.4% year over year. Operating income came in at $362 million, up 14.6%. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was up 10% to $715 million. Adjusted EBITDA margin expanded to 34.8% from 31.9% in the prior-year quarter.

In the second quarter of 2016, Level 3 Communications generated $631 million of cash from operations compared with $419 million in the year-ago quarter. Free cash flow, in the reported quarter, was $264 million compared with $102 million in the prior-year quarter.

At the end of the second quarter of 2016, the company had $1,291 million of cash and cash equivalents and $10,878 million of outstanding debt compared with $854 million and $11,009 million, respectively, at the end of 2015. Meanwhile, the debt-to-capitalization ratio was 0.51 compared with 0.52 at the end of 2015.

LEVEL 3 COMM Price, Consensus and EPS Surprise

LEVEL 3 COMM Price, Consensus and EPS Surprise | LEVEL 3 COMM Quote

Guidance

For 2016, Level 3 Communications expects adjusted EBITDA to grow 10% to 12% on a year-over-year basis. Free cash flow is estimated in the range of $1 billion to $1.1 billion.

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