Level 3 Communications Inc. (LVLT - Free Report) reported impressive financial results for the second quarter of 2017. The company’s bottom and top line beat the Zacks Consensus Estimate.
On a GAAP basis, net income in the reported quarter was $154 million or 42 cents per share compared with $156 million or 44 cents in the year-ago quarter. However, quarterly adjusted earnings per share (EPS) of 42 cents outpaced the Zacks Consensus Estimate of 39 cents. The company’s bottom line declined 19.23% on a year-over-year basis.
In second-quarter 2017, total revenue was $2,061 million, up 0.24% year over year and above the Zacks Consensus Estimate of $2,059.5 million.
Segment-wise, Core Network Services’ (CNS) revenues amounted $1,965 million, compared with $1,956 million in the year-ago quarter. Wholesale Voice Services and Other revenues totaled $99 million compared with $100 million in the prior-year quarter.
Geographically, North America generated $1,607 million in CNS revenues, flat year over year. Europe, the Middle East and Africa accounted for $176 million of revenues at CNS, down 8%. Latin America contributed $182 million, up 14%.
Total operating expenses in the reported quarter were $1,708 million compared with $1,682 million in the year-ago quarter. Operating income came in at $353 million compared with $374 million in the first quarter of 2016. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $722 million versus $715 million at the end of Jun 2016. Adjusted EBITDA margin expanded to 35.0% from 34.8% in the prior-year quarter.
In the quarter under review, Level 3 Communications generated $564 million of cash from operations compared with $631 million in the year-ago quarter. Free cash flow was $233 million compared with $264 million in the prior-year quarter.
At the end of Jun 2017, the company had $1,056 million of cash and cash equivalents compared with $1,291 million and $1,947 million, at the end of Jun 2016 and Mar 2017. Total outstanding debt was $10,890 million compared with $10,878 million and $10,888 million, at the end of Jun 2016 and Mar 2017. Meanwhile, the debt-to-capitalization ratio was 0.43 compared with 0.44 at the end of Mar 2016.
2017 Guidance/Business Outlook
The full-year guidance was reiterated at $2.94–$3.00 billion for EBITDA, $1.10–$1.16 billion for free cash flow and 16% of total revenue for capital expenditure. Depreciation and amortization is projected at be $1.35 billion.
In May 2017, CenturyLink Inc. (CTL - Free Report) and Level 3 Communications moved closer in completing their proposed merger after receiving approvals from more than 15 states and territories.The cash and stock deal is expected to close by the end of 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) .
However, we believe that Level 3 Communications’ operation in a highly competitive enterprise communications market, along with customer concentration, foreign currency exchange rate risks and global macroeconomic fluctuations have led to the company’s current Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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