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CenturyLink (CTL) Gains on Q2 Earnings and Revenue Beat

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CenturyLink Inc. (CTL - Free Report) posted second-quarter 2014 adjusted earnings (adjusted for purchase accounting intangibles and interest amortization of previous acquisitions) of 72 cents per share, ahead of the Zacks Consensus Estimate of 64 cents. Earnings also improved 4.3% from the year-ago figure of 69 cents. The results pushed the stock price up by almost 3% in the after-hours trade on Wednesday on NYSE.

Quarterly revenues of $4,541 million surpassed the Zacks Consensus Estimate of $4,504 million. Revenues also jumped 0.4% from the second-quarter 2013 number of $4,525 million.

The performance reflects strong contributions from broadband, Prism TV and the demand from business customers for data and hosting services, which partially offset access line losses.

Segment Results

Consumer revenues grew 0.4% year over year to $1,500 million in the quarter. Strategic revenues increased on high-speed Internet, Prism TV subscriber addition and rate hikes on certain products. The segment registered Prism TV subscriber growth of nearly 16,000 and ended the quarter with almost 215,000 subscribers.

Business revenues were $1,564 million, up 2.6% year over year. The company’s strength in high-bandwidth offerings and solid sales momentum drove the results.

The Wholesale segment generated revenues of $866 million, down 4.8% from the prior-year quarter. The drop was due to decline in low speed data and legacy revenues owing to reduced access rates and lower long-distance and switched access minutes of use. The company completed over 500 fiber builds in the quarter and reduced the number of fiber builds expected in 2014 to 2,000–2,500 owing to customers’ decisions to defer certain cities in 2015. The company exited the second quarter of 2014 with more than 19,700 fiber connected towers.

Data Hosting revenues increased 3.2% year over year to $358 million, driven by growth in managed hosting and colocation service revenues, as cross-selling initiatives continue to strengthen.


At the end of the second quarter of 2014, total access lines were 12.707 million compared with 12.882 million at the end of the previous quarter. CenturyLink lost 2,100 high-speed Internet customers during the year, thus bringing the total to 6.055 million (down 0.3% from last quarter).


CenturyLink exited the second quarter of 2014 with $181 million of cash and cash equivalents compared with $168 million at the end of fiscal 2013. Long-term debt decreased to $19,771 million from $20,181 million at year-end 2013. The company generated operating cash flow of $1,813.0 million in the quarter, while free cash flow was $677.0 million.

Share Repurchase

The company repurchased 59.5 million shares thus completing the $2.0 billion buyback program initiated in Feb 2013. The company also commenced a follow-on $1 billion share repurchase program in the second quarter.


For the third quarter of 2014, the company expects earnings per share and operating revenues in the range of 58 cents to 63 cents and $4.47 billion to $4.52 billion, respectively. Operating cash flows are expected between $1.72 billion and $1.77 billion.

Other Stocks

United States Cellular Corp. (USM - Free Report) , a subsidiary of Telephone and Data Systems Inc. (TDS - Free Report) , reported second-quarter 2014 loss per share of 22 cents, much wider than the Zacks Consensus Estimate of a loss of 15 cents.

On the other hand, Frontier Communications Corporation (FTR - Free Report) reported its second-quarter 2014 adjusted earnings per share of 5 cents, in line with the Zacks Consensus Estimate.

Our Analysis

We expect the company to perform impressively in the coming months backed by broadband expansion, faster fiber builds, better cloud computing and hosting solutions, and the penetration of Prism TV into new markets which is likely to drive profitability.

However, stiff competition, deteriorating legacy voice and access revenues, regulatory issues and constant need for technology upgrades may impact the company’s operating performance. CenturyLink has a Zacks Rank #4 (Sell).

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