The fourth-largest U.S. landline operator
) reported first quarter 2012 adjusted earnings of 68 cents per
share beating the Zacks Consensus Estimate of 59 cents.
However, adjusted earnings plunged 12.8% from the year-ago
earnings of 78 cents. The downfall was due to steeper operating
expenses and lower legacy voice and access revenues, arising from
the loss of customers and lower minute's usage that clouded over
higher strategic revenues.
Adjusted earnings per share exclude the impact of special items
related to the non-cash effect of the amortization of intangibles,
interest expense of the assignment of fair value to debt
outstanding related to the Embarq and Qwest and Savvis
transactions, and acquisition-related adjustments and special items
related to the income tax rate.
Quarterly revenue soared 171.8% year over year to $4,610
million, and was slightly ahead of the Zacks Consensus Estimate of
revenues declined 4.1% year over year to $2.2 billion in the
reported quarter. Slowdown in the legacy business was mainly
responsible for the decline.
Business Markets Group
revenue was $917 million in the first quarter, down 1.3% year over
year, mainly dampened by the decline in legacy service and data
Wholesale Markets Group
revenue was $957 million in the first quarter, down 4.2% year over
year, mainly attributable to lower access revenue as most
subscribers are substituting their fixed line services with
wireless and VoIP technology services.
generated revenues of $266 million in the reported quarter, up 3.9%
on a year-over-year basis. Strong orders generated during the
quarter fueled growth in the segment.
At the end of the first quarter, total access lines were 14.4
million compared with 14.6 million in the year-ago quarter.
CenturyLink added 89,000 high-speed Internet customers during the
reported quarter, thus bringing the total to 5.64 million (up 4.2%
year over year).
CenturyLink exited the first quarter with $1.5 billion of cash
and cash equivalents compared with $128 million at the end of
fiscal 2011. Long-term debt increased to $20.6 billion from $20.8
billion at year-end 2011.
The company generated operating cash flow of $1.6 billion in the
first quarter compared with $670 million in the year-ago quarter,
primarily attributable to the Qwest acquisition. Capital
expenditure was $678 million compared with $211 million in the
For the second quarter 2012, CenturyLink projects revenues and
earnings per share in the bands of $4.55 billion to $4.60 billion
and 59 cents to 64 cents, respectively. Operating cash flow is
expected in the range of $1.86-$1.91 billion.
For full year 2012, CenturyLink expects revenues and earnings
per share in the bands of $18.2 billion to $18.4 billion and $2.35
to $2.55, respectively. Operating cash flow is expected in the
range of $7.45-$7.65 billion. Capital expenditures and free cash
flow are expected in the range of $2.6 billion to $2.8 billion and
$3.2 billion to $3.4 billion, respectively.
CenturyLink is successfully integrating and operating the Embarq
properties, mitigating the rate of access line loss and meeting
customer demand for high-speed Internet and high-bandwidth
services. The company believes that the Qwest and Savvis
acquisitions will significantly enhance its position as a global
communications leader and strengthen its ability to drive long-term
shareholder value. The acquisitions will also provide a competitive
edge over its two major rivals,
). However, significant integration risks as well as increased
operating expenses resulting from the acquisitions may impede
operating performance ahead.
We have a long-term Neutral recommendation on the stock. For the
short term (1-3 months), CenturyLink retains a Zacks #3 (Hold)
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