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CenturyLink (CTL) Q1 Earnings Top Estimates, Revenues Miss

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CenturyLink, Inc. (CTL - Free Report) reported mixed financial results for the first quarter of 2018, the first full quarter of operations following the acquisition of Level 3.    

Net Income

On a GAAP basis, net income for the reported quarter came in at $115 million or 11 cents per share compared with $163 million or 30 cents per share in the year-ago quarter. The year-over-year decrease in earnings despite higher revenues was primarily driven by higher operating expenses. The company’s adjusted earnings were 25 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 15 cents.

Revenues

Total operating revenues increased 41% year over year to $5,945 million, due to incremental revenues from Level 3. The top line, however, missed the Zacks Consensus Estimate of $5,963 million.

Operating Metrics

Quarterly operating expenses totaled $5,195 million, up 45% year over year. Operating income improved 19% to $750 million. Operating income margin was 12.6% compared with 15% in the year-ago quarter. Adjusted EBITDA decreased to $2,074 million from $2,140 million in the year-ago quarter, due to an increase in payroll taxes and integration-related expenses. Adjusted EBITDA margin was 34.9% compared with 35.4% in the prior-year quarter.    

As of Jan 1, 2018, the company adopted the new revenue recognition standard, ASC 606. Overall, the adoption of this new standard negatively affected total revenues by approximately $15 million in the quarter, with $5 million in Business and $10 million in Consumer.
 

CenturyLink, Inc. Price, Consensus and EPS Surprise

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

Q1 Segmental Performance

Total revenues from Business segment were $4,383 million compared with Pro Forma revenues of $4,429 million in the year-ago quarter. The sales figure was affected by slower sales and the adoption of the new revenue recognition standard.  

Consumer segment revenues were $1,379 million compared with Pro Forma revenues of $1,447 million in the first quarter of 2017. The company incurred a net loss of about 58,000 broadband subscribers in the reported quarter.  

By Business Unit, Medium & Small business revenues were $860 million, while Enterprise revenues were $1,315 million. By Service Type, IP & Data services generated $1,845 million, while Transport & Infrastructure and Voice & Collaboration revenues were $2,118 million and $1,637 million, respectively.

Cash Flow

For the first three months of 2018, CenturyLink generated $1,667 million of cash from operations compared with $1,057 million in the prior-year period. Free cash flow was $862 million compared with $448 million in the first quarter of 2017.  

Liquidity

As of Mar 31, 2018, CenturyLink had $501 million of cash and cash equivalents while long-term debt was $36,940 million.

Full-Year 2018 Outlook

For 2018, CenturyLink has reiterated its adjusted EBITDA and free cash flow outlook. Adjusted EBITDA is anticipated in the range of $8.75-$8.95 billion. Free cash flow is expected in the range of $3.15-$3.35 billion. Free cash flow after dividends is projected between $0.85 billion and $1.05 billion. Capital expenditures are likely to be around 16% of revenues.

However, the company has reduced its outlook for depreciation and amortization to $5.1-$5.3 billion from $5.4-$5.5 billion, due to valuation adjustments related to purchase price accounting. It received an anticipated tax refund of $314 million after the close of the just reported quarter.

Positioned as one of the world's leading network providers, management believes that there are significant opportunities to grow business and drive long-term shareholder value.

It remains focused on sales force integration and driving profitable revenue growth while improving customer experience.

CenturyLink currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include Micron Technology, Inc. (MU - Free Report) , SITO Mobile, Ltd. (SITO - Free Report) and SMC Corporation . While Micron Technology sports a Zacks Rank #1 (Strong Buy), SITO Mobile and SMC carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Micron Technology has an expected long-term earnings growth rate of 10%. It has exceeded earnings estimates in each of the trailing four quarters, with an average of 8%.  

SITO Mobile has an expected long-term earnings growth rate of 25%.

SMC has an expected long-term earnings growth rate of 13.7%.  

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