CenturyLink to Lay Off 1,000 Employees Post a Dismal Q2

Telecommunications company CenturyLink, Inc. CTL is planning to retrench 1,000 employees following its disappointing second-quarter results. However, the company has not provided details on the news following which its shares gained roughly 2.2% in the after hour trading session on Friday.

In 2011, CenturyLink had acquired Denver-based Qwest Communications which has positioned the company as the largest landline service provider in the Colorado region. However, in recent times, the company's employee count in Colorado has fallen considerably. As per Denver Business Journal, the company had 7,000 workers in Colorado in 2012, the count declining to 6,900 and 5,800 in 2013 and 2014, respectively.

Meanwhile, CenturyLink's second-quarter 2015 results failed to impress with both the top and the bottom line missing the Zacks Consensus Estimate. This dismal performance can be largely attributed to continued pressure on wholesale revenues along with high employee and benefit costs. Taking these factors into account, the company lowered its outlook for 2015.

For 2015, the company 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. Operating cash flow is projected 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 forecasted between $2.35 and $2.55, below the previous estimate of $2.50 to $2.70.

In the second quarter, the company's operating income margin stood at 12.4% compared with 14.4% in the year-ago quarter. Meanwhile, we believe that this Zacks Rank #3 (Hold) company's decision to fire as many as 1,000 employees will boost its operating margin in the coming quarters.

Stocks to Consider

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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