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CenturyLink (CTL) Beats Q2 Earnings Estimates, Ups Guidance

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CenturyLink, Inc. (CTL - Free Report) reported mixed second-quarter 2018 results wherein the top line missed the Zacks Consensus Estimate but the bottom line surpassed the same.

Net Income

Net income for the reported quarter was $292 million or 27 cents per share compared with $17 million or 3 cents per share in the year-ago quarter. The year-over-year increase was primarily attributable to higher revenues and income tax benefit.

Adjusted net income came in at $282 million or 26 cents per share compared with $131 million or 24 cents per share in the year-ago quarter. Adjusted earnings for the reported quarter beat the Zacks Consensus Estimate by 3 cents.

CenturyLink, Inc. Price, Consensus and EPS Surprise

Revenues

Quarterly operating revenues increased 44.3% year over year to $5,902 million driven by incremental revenues from Level 3. The top line, however, lagged the Zacks Consensus Estimate of $5,930 million.

Operating Metrics

Total operating expenses increased 38% year over year to $5,135 million. Operating income improved 109% to $767 million primarily due to higher revenues. Operating margin was 13% compared with 9% in the year-ago quarter.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose to $2,111 million from $2,007 million in the year-ago quarter. Adjusted EBITDA margin was 35.8% compared with 33.2% 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 affected total revenues by approximately $11 million in the reported quarter, reflecting $27 million negative impact on Consumer revenues and $16 million positive impact on Business revenues.

Other Quarter Details

Business revenues were $4,365 million compared with Pro Forma revenues of $4,419 million in the year-ago quarter. The sales figure was affected by slower sales and the adoption of the new revenue recognition standard.

Consumer revenues were $1,352 million compared with Pro Forma revenues of $1,436 million in the second quarter of 2017. The company incurred a net loss of about 80,000 broadband subscribers in the reported quarter.  

By Business unit, Medium & Small business revenues were $884 million, while Enterprise revenues were $1,295 million. Consumer, Wholesale & Indirect, and International & Global Accounts generated $1,352 million, $1,283 million and $903 million, respectively.

By Service type, revenues from IP & Data services were $1,833 million, while that from Transport & Infrastructure, and Voice & Collaboration totaled $2,064 million and $1,658 million, respectively.

Cash Flow & Liquidity

For the first six months of 2018, CenturyLink generated $3,249 million of cash from operations compared with $1,742 million in the prior-year period. As of Jun 30, 2018, the company had $700 million of cash and cash equivalents with long-term debt of $36,878 million.

2018 View

For full-year 2018, CenturyLink has raised its adjusted EBITDA, free cash flow and free cash flow after dividends guidance on favorable growth dynamics. Adjusted EBITDA is anticipated in the range of $9.00-$9.15 billion, up from the previous view of $8.75-$8.95 billion. Free cash flow is expected in the range of $3.60-$3.80 billion, up from $3.15-$3.35 billion expected earlier. Free cash flow after dividends is projected between $1.30 billion and $1.50 billion, up from the previous range of 0.85-$1.05 billion. Effective income tax rate is expected to be around 18% for 2018.

Zacks Rank & Stocks to Consider

CenturyLink currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include United States Cellular Corporation (USM - Free Report) , AT&T Inc. (T - Free Report) and Aquantia Corp. (AQ - Free Report) . While United States Cellular sports a Zacks Rank #1 (Strong Buy), AT&T and Aquantia carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

United States Cellular has a long-term earnings growth expectation of 1%. It surpassed earnings estimates thrice in the trailing four quarters with an average positive surprise of 303.6%.      

AT&T has a long-term earnings growth expectation of 3.4%. It surpassed earnings estimates twice in the trailing four quarters with an average positive surprise of 5.9%.     

Aquantia surpassed earnings estimates once in the trailing four quarters with an average positive surprise of 50%.     

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