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CenturyLink (CTL) Q1 Earnings Top Estimates, Revenues Lag

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CenturyLink, Inc. reported mixed first-quarter 2020 results, with the bottom line beating the Zacks Consensus Estimate and the top line missing the same.

The Monroe, LA-based communications company’s fiber and IP-based network capacity along with its financial strength, positions it well to support customers and deliver long-term shareholders’ value.

Net Income

Net income in the March quarter amounted to $314 million or 29 cents per share against a net loss of $6,165 million or loss of $5.77 per share in the year-ago quarter. The improvement can be attributed to an operating income as well as lower interest and income tax expenses.

First-quarter net income (excluding integration and transformation costs, and special items) came in at $399 million or 37 cents per share compared with $360 million or 34 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by a penny.

CenturyLink Inc Price, Consensus and EPS Surprise

 

 

Revenues

Quarterly total operating revenues declined 3.7% year over year to $5,228 million due to lower sales in the Consumer, Wholesale and SMB segments. CenturyLink’s revenues are largely recurring from a well-diversified customer base. The company has seen steady improvement in its revenue trajectory in the past few quarters. However, the top line lagged the consensus estimate of $5,484 million.

By segment, SMB revenues fell 6% year over year to $658 million. This is in line with the average year-over-year decline of 6.5% in 2019 due to persistent deterioration in legacy voice services. Revenues in Wholesale fell 7% year over year to $958 million. CenturyLink expects customers to continue to optimize spending with other vendors in this environment, which may put pressure on revenues in the upcoming quarters.

Consumer revenues fell to $1,327 million from $1,409 million in the year-ago quarter, primarily due to legacy voice revenues. The company continues to focus on improving broadband revenue-performance by its targeted fiber investments and driving up the penetration of competitive assets. In the reported quarter, CenturyLink saw a net loss of 11,000 total broadband subs. In speeds of 100 meg and above, it added 60,000 subs.

Revenues in International and Global Accounts (IGAM) were almost flat year over year at $865 million. Enterprise revenues dropped 0.4% year over year to $1,420 million. In the short term for both IGAM and Enterprise, the company expects the demand impact from cancellation of live events and customers’ differing major network buying decisions.

Other Details

Total operating expenses declined 61.1% year over year to $4,248 million, primarily due to the absence of goodwill impairment that amounted to $6,506 million in the first quarter of 2019. Operating income was $980 million against an operating loss of $5,499 million in the prior-year quarter.

Adjusted EBITDA slipped to $2,209 million from $2,228 million in the year-ago quarter. The adjusted EBITDA margin was 42.3% compared with 41.1% in the year-ago quarter. Capital expenditures were $974 million compared with $931 million in the prior-year quarter.

Cash Flow & Liquidity

In the first quarter, CenturyLink generated $1,299 million of net cash from operations compared with $1,182 million in the year-ago quarter. For the same period, free cash flow (excluding cash integration and transformation costs, and special items) was $407 million compared with $315 million in the prior-year quarter.

As of Mar 31, the company had $1,564 million in cash and equivalents with $33,481 million of long-term debt compared with the respective tallies of $1,690 million and $32,394 million at the end of the prior quarter.

2020 Guidance

Due to uncertainties related to COVID-19, CenturyLink has withdrawn its 2020 financial outlook for adjusted EBITDA, free cash flow and capital expenditures. However, it continues to estimate net cash interest between $1.75 billion and $1.80 billion. Depreciation and amortization are expected in the range of $4.7-$4.9 billion. The effective income tax rate is likely to be around 28%.

Going Forward

CenturyLink ended the quarter with a strong liquidity position due to its capital allocation decisions and refinancing activity in 2019. It continues to execute strategy around four key areas — investing in growth through product and network expansions, delivering enhanced customer experience across business, transforming operations to improve efficiency and employee experience, as well as deleveraging to strengthen its balance sheet.

Zacks Rank & Stocks to Consider

CenturyLink currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader industry are Ooma, Inc. (OOMA - Free Report) , Turtle Beach Corporation (HEAR - Free Report) and Plantronics, Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ooma has a trailing four-quarter positive earnings surprise of 124%, on average.

Turtle Beach has a trailing four-quarter positive earnings surprise of 112.5%, on average.

Plantronics has a trailing four-quarter positive earnings surprise of 27.7%, on average. The company’s earnings beat the Zacks Consensus Estimate in three of the last four quarters.

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