A month has gone by since the last earnings report for CenturyLink . Shares have added about 10.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is CenturyLink due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CenturyLink Q2 Earnings Beat, Revenues Decline Y/Y
CenturyLink reported mixed second-quarter 2019 financial results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same.
Net Income
Net income for the June quarter was $371 million or 35 cents per share compared with $292 million or 27 cents per share in the year-ago quarter. The improvement was primarily due to higher operating income, higher other net income and lower interest expenses.
Net income (excluding integration and transformation costs, and special items) came in at $369 million or 34 cents per share compared with $282 million or 26 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
Revenues
Quarterly operating revenues declined 5.5% year over year to $5,578 million in the light of difficult year-over-year comparisons, as the company implemented guardrails to drive profitable revenues during the course of 2018. The top line lagged the consensus estimate of $5,625 million.
By business unit, Small & Medium business revenues were $736 million compared with $819 million in the prior-year quarter due to legacy voice declines, while Enterprise revenues totaled $1,505 million. Wholesale and International & Global Accounts generated $1,018 million and $902 million, respectively. Consumer revenues were $1,417 million compared with $1,541 million in the second quarter of 2018. This was due to headwinds related to retail video and voice attrition, partly offset by growth in broadband revenues, which was driven by its efforts to increase penetration in competitive assets and investing in fiber.
Other Details
Total operating expenses declined 10.4% year over year to $4,602 million primarily due to lower cost of services and products. Operating income was $976 million compared with $767 million in the prior-year quarter backed by lower operating expenses. Adjusted EBITDA rose to $2,215 million from $2,111 million. Adjusted EBITDA margin was 39.7% compared with 35.8% a year ago, driven by cost-transformation initiatives.
Cash Flow & Liquidity
During the first six months of 2019, CenturyLink generated $2,883 million of net cash from operations compared with $3,249 million in the year-ago period. For the reported quarter, free cash flow (excluding cash integration and transformation costs, and special items) was $956 million compared with $919 million in the prior-year quarter. As of Jun 30, 2019, the communications company had $410 million in cash and equivalents with $33,193 million of long-term debt.
2019 Outlook Reiterated
Owing to a decent first half of 2019 in capturing synergy together with cost-transformation and de-leveraging efforts, CenturyLink has reiterated its full-year 2019 financial outlook for adjusted EBITDA and free cash flow. It continues to expect adjusted EBITDA of $9.00-$9.20 billion. While free cash flow is expected in the range of $3.10-$3.40 billion, free cash flow after dividends is projected between $2.005 billion and $2.305 billion. Outlook for capital expenditures is anticipated between $3.50 billion and $3.80 billion, and depreciation and amortization is expected to be $4.75-$4.85 billion. Effective income tax rate is expected to be around 25%.
Going Forward
Along with investments for growth, CenturyLink is focused on profitable revenue while digitally transforming itself through improvement in customer experience and streamlining operations for employees. The company believes the scale of its global assets alongside innovative product portfolio to be accretive to earnings. It is also working with customers to enable their 5G roadmaps while extending its fiber footprint.
Further, CenturyLink remains confident in its ability to meet its de-leveraging objectives and reaching the target leverage range of 2.75x-3.25x (net debt to adjusted EBITDA) within the next three years backed by healthy business fundamentals. The company intends to return significant value to shareholders while investing in revenues and EBITDA growth drivers.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, CenturyLink has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CenturyLink has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is CenturyLink (CTL) Up 10.8% Since Last Earnings Report?
A month has gone by since the last earnings report for CenturyLink . Shares have added about 10.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is CenturyLink due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CenturyLink Q2 Earnings Beat, Revenues Decline Y/Y
CenturyLink reported mixed second-quarter 2019 financial results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same.
Net Income
Net income for the June quarter was $371 million or 35 cents per share compared with $292 million or 27 cents per share in the year-ago quarter. The improvement was primarily due to higher operating income, higher other net income and lower interest expenses.
Net income (excluding integration and transformation costs, and special items) came in at $369 million or 34 cents per share compared with $282 million or 26 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
Revenues
Quarterly operating revenues declined 5.5% year over year to $5,578 million in the light of difficult year-over-year comparisons, as the company implemented guardrails to drive profitable revenues during the course of 2018. The top line lagged the consensus estimate of $5,625 million.
By business unit, Small & Medium business revenues were $736 million compared with $819 million in the prior-year quarter due to legacy voice declines, while Enterprise revenues totaled $1,505 million. Wholesale and International & Global Accounts generated $1,018 million and $902 million, respectively. Consumer revenues were $1,417 million compared with $1,541 million in the second quarter of 2018. This was due to headwinds related to retail video and voice attrition, partly offset by growth in broadband revenues, which was driven by its efforts to increase penetration in competitive assets and investing in fiber.
Other Details
Total operating expenses declined 10.4% year over year to $4,602 million primarily due to lower cost of services and products. Operating income was $976 million compared with $767 million in the prior-year quarter backed by lower operating expenses. Adjusted EBITDA rose to $2,215 million from $2,111 million. Adjusted EBITDA margin was 39.7% compared with 35.8% a year ago, driven by cost-transformation initiatives.
Cash Flow & Liquidity
During the first six months of 2019, CenturyLink generated $2,883 million of net cash from operations compared with $3,249 million in the year-ago period. For the reported quarter, free cash flow (excluding cash integration and transformation costs, and special items) was $956 million compared with $919 million in the prior-year quarter. As of Jun 30, 2019, the communications company had $410 million in cash and equivalents with $33,193 million of long-term debt.
2019 Outlook Reiterated
Owing to a decent first half of 2019 in capturing synergy together with cost-transformation and de-leveraging efforts, CenturyLink has reiterated its full-year 2019 financial outlook for adjusted EBITDA and free cash flow. It continues to expect adjusted EBITDA of $9.00-$9.20 billion. While free cash flow is expected in the range of $3.10-$3.40 billion, free cash flow after dividends is projected between $2.005 billion and $2.305 billion. Outlook for capital expenditures is anticipated between $3.50 billion and $3.80 billion, and depreciation and amortization is expected to be $4.75-$4.85 billion. Effective income tax rate is expected to be around 25%.
Going Forward
Along with investments for growth, CenturyLink is focused on profitable revenue while digitally transforming itself through improvement in customer experience and streamlining operations for employees. The company believes the scale of its global assets alongside innovative product portfolio to be accretive to earnings. It is also working with customers to enable their 5G roadmaps while extending its fiber footprint.
Further, CenturyLink remains confident in its ability to meet its de-leveraging objectives and reaching the target leverage range of 2.75x-3.25x (net debt to adjusted EBITDA) within the next three years backed by healthy business fundamentals. The company intends to return significant value to shareholders while investing in revenues and EBITDA growth drivers.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, CenturyLink has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CenturyLink has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.