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CenturyLink (CTL) Q2 Earnings Lag, Revenues Top Estimates

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CenturyLink Inc. (CTL - Free Report) reported mixed financial results in the second quarter of 2017, ended Jun 30. The bottom line fell short of the Zacks Consensus Estimate, while the top line beat the same.

Net Income

CenturyLink's net income in second-quarter 2017 was $17 million or 3 cents per share, compared to $196 million or 36 cents in the year-ago quarter. Adjusted earnings per share (EPS) of 46 cents missed the Zacks Consensus Estimate of 49 cents. Moreover, the bottom line declined 26.98% on a year-over-year basis.

Revenue

Operating revenues for second-quarter 2017 was $4,090 million compared with $4,398 million in the prior-year quarter. The downfall can be attributed to decline in legacy revenues and the revenue reduction due to the Colocation Sale effective May 1. However, the top line surpassed the Zacks Consensus Estimate of $4,085 million.

Of the total, strategic revenues amounted $1,915 million, down 6% year over year. Legacy revenues accounted for $1,740 million, down 10%. Data Integration revenues grossed $133 million, up 8%. Other services contributed the remaining $302 million, down 2%.

Operating Metrics

Quarterly operating expenses totaled $3,723 million, down 1% year over year. Meanwhile, operating income decreased to $367 million from $647 million in second-quarter 2016.  Operating income margin was 9.0% compared with 14.7% in the year-ago quarter.

Adjusted EBITDA (excluding special items) decreased to $1,316 million from $1,634 million in second-quarter 2016 due to the decline in operating revenues outlined above. This was partially offset by lower operating expenses. Adjusted EBITDA margin was 32.2% compared with 37.2% in the year-ago quarter.

Cash Flow

In the quarter under review, CenturyLink generated $685 million of net cash from operations compared with $1,178 million in the year-ago quarter. Adjusted free cash flow was at a loss of $52 million compared with $617 million in the year-ago quarter.

Liquidity

At the end of Jun 30, CenturyLink had $342 million of cash and cash equivalents compared with $222 million at the end of Dec 2016. Total debt was $24,881 million compared with $18,185 million at the end of Dec 2016. Meanwhile, the debt-to-capitalization ratio was 0.49 versus 0.39 at the end of Dec 2016.

Segmental Results

Enterprise segment revenues dropped 9.0% year over year to $2,215 million in the second quarter. Total expenses declined from $1,372 million in second-quarter 2016 to $1,285 million in the quarter under review. Segmental income was $930 million compared with $1,063 million in the year-ago quarter. Segmental income margin was 42.0% compared with 43.7% in the year-ago period.

Consumer segment revenues were $1,402 million, down 6.2% year over year. Total expenses declined from $639 million in second-quarter 2016 to $592 million in the second quarter of 2017. Segmental income was $810 million compared with $855 million in the prior-year quarter. Segmental income margin was 57.8% compared with 57.2% in the year-ago quarter.

Subscriber Statistics

As of Jun 30, 2017, total access lines were 10.733 million, down 5.95% year over year. High-speed broadband customer count was 5.868 million, down 2.03%.

Q3 2017 Outlook

CenturyLink anticipates growth in strategic revenues to offset expected declines in legacy revenues in third quarter 2017 compared with the year-ago period (excluding approximately $50 million of colocation revenue reported in second quarter 2017). The company expects a slight increase in third-quarter 2017 adjusted EBITDA compared to second-quarter 2017 results. The company also projects a significant increase in adjusted free cash flow compared to second-quarter 2017 results due to the timing of cash interest and cash tax payments. CenturyLink anticipates decline in capital expenditures in the third quarter of 2017.

For the third quarter of 2017, the company projects adjusted earnings per share and operating revenues in the range of 44 cents to 50 cents and $4.06 billion to $4.12 billion, respectively. Core revenues are estimated in the range of $3.59 billion to $ 3.65 billion. Adjusted EBITDA is expected between $1.43 billion to $1.49 billion.

However, CenturyLink did not provide any updated guidance for the full-year 2017 due to the pending acquisition of Level 3 Communications Inc. (LVLT - Free Report) . The buyout is expected to be completed by the end of third quarter of 2017. Consolidation of results for the combined companies is expected during fourth-quarter 2017.

CenturyLink, Inc. Price, Consensus and EPS Surprise

 

CenturyLink, Inc. Price, Consensus and EPS Surprise | CenturyLink, Inc. Quote

Recent Development

Recently, CenturyLink unveiled the long-awaited beta version of the over the top (OTT) TV service, the Virtual Multichannel Video Programming Distributor service (V-MVPD).

Last month, CenturyLink announced its decision to offer managed enterprise services in association with Cisco Systems Inc.’s (CSCO) subsidiary, Cisco Meraki.

In May 2017, CenturyLink and Level 3 Communications moved closer in completing their proposed merger after receiving state approvals from more than 15 states and territories.The cash and stock deal is expected to close by the end of the third quarter of 2017, subject to customary regulatory approvals. The merged entity will be able to compete with telecom giants like AT&T Inc. (T - Free Report) and Verizon Communications Inc. (VZ - Free Report) . CenturyLink currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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