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Lumen (LUMN) Beats Q2 Earnings Estimates, Misses on Revenues

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Lumen Technologies, Inc. (LUMN - Free Report) reported mixed second-quarter 2021 results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. Lower revenues in all the segments led to year-over-year top-line deterioration.

Bottom Line

Net income in the June quarter was $506 million or 46 cents per share compared with $377 million or 35 cents per share in the year-ago quarter. The year-over-year improvement, despite top-line contraction, was primarily driven by lower operating expenses.

Excluding non-recurring items, adjusted net income came in at $521 million or 48 cents per share compared with $420 million or 39 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents.

Lumen Technologies, Inc. Price, Consensus and EPS Surprise Lumen Technologies, Inc. Price, Consensus and EPS Surprise

Lumen Technologies, Inc. price-consensus-eps-surprise-chart | Lumen Technologies, Inc. Quote

Top Line

Quarterly total revenues slipped 5.2% year over year to $4,924 million owing to challenging macroeconomic environment. The top line missed the consensus estimate of $5,000 million.

By segment, Business revenues fell 5.2% to $3,522 million, due to lower sales in the IGAM, Large Enterprise, Mid-Market Enterprise and Wholesale markets. Soft demand for IP and Data services due to lower sales of hybrid networks with a reduction in voice revenues acted as major headwinds as well. Revenues from Mass Markets decreased to $1,402 million from $1,475 million in the year-earlier quarter, led by decline in voice revenues.

IGAM revenues fell 2.6% year over year to $1,004 million due to Content Delivery Network rerates and lack of customer interaction. Revenues from Large Enterprise declined 4.3% to $931 million due to lower sales and conclusion of several projects in the public sector. Mid-Market Enterprise revenues fell to $682 million from $755 million in the year-ago quarter. Revenues in Wholesale tumbled 5.5% to $905 million.

Lumen anticipates witnessing healthy momentum in Quantum investments and fiber to the home investment strategy to bolster growth of consumer and small business markets in the upcoming quarters. The company tapped 746,000 quantum fiber subscribers in the reported quarter.

Other Quarterly Details

Total operating expenses decreased 8.6% year over year to $3,918 million, primarily due to lower cost of services and products. Operating income was $1,006 million compared with $903 million in the prior-year quarter. Adjusted EBITDA (excluding special items) slipped to $2,109 million from $2,135 million for respective margins of 42.8% and 41.1%.

Cash Flow & Liquidity

In the first six months of 2021, Lumen generated $3,164 million of net cash from operations compared with $3,048 million in the year-ago period. Free cash flow (excluding cash special items) in the quarter was $1,044 million compared with $772 million in the prior-year quarter. As of Jun 30, 2021, the company had $935 million in cash and cash equivalents with $28,574 million of long-term debt.

2021 Outlook

For 2021, Lumen expects adjusted EBITDA in the range of $8.4-$8.6 billion. Adjusted free cash flow is projected between $3.1 billion and $3.3 billion, up from $2.8-$3 billion expected earlier. Capital expenditures are estimated between $3.2 billion and $3.5 billion compared with prior expectations of $3.5-$3.8 billion.

Moving Ahead

Despite weak revenues, Lumen ended the quarter with solid free cash flow generation driven by effective capital allocation decisions. Strategic partnerships and incremental investments in platform capabilities make it well positioned to deliver enhanced customer experience. Based on these focused endeavors, Lumen expects to achieve its financial targets in the long run. The Monroe, LA-based company’s Quantum Fiber platform and IP-based network capacity also positions it well to support customers and deliver long-term shareholders’ value.

Zacks Rank & Stocks to Consider

Lumen currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are AstroNova, Inc. (ALOT - Free Report) , Blucora, Inc. (BCOR - Free Report)   and Switch, Inc. (SWCH - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AstroNova has a long-term earnings growth expectation of 12%. It delivered an earnings surprise of 66.7%, on average, in the trailing four quarters.

Blucora has a long-term earnings growth expectation of 15%. It delivered an earnings surprise of 3.8%, on average, in the trailing four quarters.

Switch delivered an earnings surprise of 26.3%, on average, in the trailing four quarters.


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