CenturyLink Lags Q2 Earnings, Revenues; Trims '15 Outlook

CenturyLink Inc. CTL reported dismal results in the second quarter of 2015, wherein both the top and the bottom line missed the Zacks Consensus Estimate. The company's second-quarter performance was largely affected by continued pressure on wholesale revenues along with higher employee and benefit costs. Taking these factors into account, the company lowered its outlook for 2015.

CenturyLink posted second-quarter 2015 adjusted earnings of 55 cents per share, missing the Zacks Consensus Estimate of 61 cents. Adjusted earnings also declined 23.6% year over year. GAAP net income stood at $143 million or 26 cents per share compared with net income of $193 million or 34 cents in the prior-year quarter.

Quarterly revenues of $4,419 million fell 2.7% from the prior-year quarter and also missed the Zacks Consensus Estimate of $4,437 million. Out of the total, Strategic revenues came in at $2,332 million, up 1.9%. Legacy revenues stood at $1,687 million, down 6.9%. Data Integration revenues were $142 million, down 24.1%. Other services contributed the remaining $258 million, up 2%.

Meanwhile, quarterly operating expenses totaled $3,870 million, down 0.4% year over year. Operating income stood at $549 million compared with $720 million in the year-ago quarter.

Cash Flow

In the quarter under review, CenturyLink generated $1,624 million of adjusted cash from operations compared with $1,813 million in the year-ago quarter. Adjusted free cash flow, in the reported quarter, was $562 million compared with $677 million a year ago.  

Liquidity

CenturyLink exited the second quarter of 2015 with $155 million of cash and cash equivalents compared with $128 million at the end of 2014. At quarter-end, long-term debt stood at $18,834 million compared with $20,121 million at end-2014. Meanwhile, the debt-to-capitalization ratio was 0.56 versus 0.57 at 2014-end.

Segmental Results

Consumer segment revenues fell 0.1% year over year to $1,502 million in the reported quarter. Segmental profits totaled $885 million, down 1.6% year over year. The segment's profit margin stood at 58.9% compared with 59.9% in the second quarter of 2014.

Business revenues were $2,659 million, down 4.6% year over year. Segmental profits were $1,134 million, down 10.2% year over year. The division's profit margin was 42.6% compared with 45.6% in the year-ago quarter.

Subscriber Statistics

As of Jun 30, 2015, total access line count stood at 12.109 million, down 4.7% year over year. High-speed broadband customers were 6.108 million, up 0.9% and Prism TV customer count stood at 0.258 million, up 20.6%. In the reported quarter, CenturyLink lost 9,000 high-speed broadband subscribers and 161,000 access lines.   

Third-Quarter Guidance

For the third quarter of 2015, the company expects adjusted earnings per share and operating revenues in the range of 53 cents to 58 cents and $4.42 billion to $4.47 billion, respectively. Core revenues will likely be in the range of $4.02 billion to $4.07 billion. Operating cash flow is projected between $1.62 billion and $1.67 billion.

2015 Guidance

For 2015, the company now expects operating revenues in the range of $17.7 billion to $17.9 billion, down from the previous estimate of $17.9–$18.1 billion. The core revenue guidance has been slashed to the range of $16.1 billion to $16.25 billion, down from the prior estimate of $16.25–$16.45 billion. Operating cash flow is expected between $6.7 billion and $6.85 billion, below the prior outlook of $6.8 billion to $7.0 billion. Adjusted earnings per share are projected between $2.35 and $2.55, lower than the company's previous estimate of $2.50 to $2.70.

Zacks Rank & Stocks to Consider

CenturyLink currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include T-Mobile US, Inc. TMUS, Inteliquent, Inc. IQNT and Ruckus Wireless, Inc. RKUS. All these stocks hold a Zacks Rank #2 (Buy).

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