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Lumen (LUMN) Q4 Earnings Miss Estimates, Revenues Fall Y/Y

Lumen Technologies, Inc. LUMN reported tepid fourth-quarter 2021 results, wherein both the bottom line and top line lagged their respective Zacks Consensus Estimate. Pandemic-induced lower revenues in the Business and Mass Markets segments, along with a reduction in voice revenues across Enterprise and Wholesale product categories, hampered Lumen’s top-line growth.

Bottom Line

Net income in the December quarter was $508 million or 50 cents per share against a net loss of $2,289 million or a loss of $2.12 per share in the year-ago quarter. The year-over-year drastic improvement, despite top-line contraction, was mainly driven by lower operating expenses. Operating income in the reported quarter was a major positive as well.

Excluding special items, adjusted net income came in at $522 million or 51 cents per share compared with $453 million or 42 cents per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 4 cents.

In 2021, net income came in at $2,033 million or $1.91 per share against a net loss of $1,232 million or a loss of $1.14 per share in 2020. Excluding special items, adjusted net income in the year was $2,039 million or $1.91 per share compared with $1,631 million or $1.51 per share in 2020.

Lumen Technologies, Inc. Price, Consensus and EPS Surprise

Lumen Technologies, Inc. Price, Consensus and EPS Surprise

Lumen Technologies, Inc. price-consensus-eps-surprise-chart | Lumen Technologies, Inc. Quote

Top Line

Quarterly total revenues slipped 5.4% year over year to $4,847 million owing to a challenging macroeconomic environment. The top line lagged the consensus estimate of $4,863 million.

In 2021, total revenues came in at $19,687 million compared with $20,712 million in 2020.

By segment, Business revenues fell 4.7% to $3,494 million due to lower sales in the International and Global Accounts (IGAM), Large Enterprise, Mid-Market Enterprise and Wholesale markets. Soft demand for compute and application services and fiber infrastructure services with a reduction in voice revenues across Enterprise and Wholesale product categories acted as a major headwind. Also, weak demand for IP and Data services due to fewer new VPN network deployments was a spoilsport. Revenues from Mass Markets decreased to $1,353 million from $1,460 million in the year-earlier quarter, led by a decline in voice, consumer broadband and Connect America Fund II revenues.

IGAM revenues decreased 1.5% year over year to $1,017 million as a result of a higher customer churn rate. Revenues from Large Enterprise declined 6.5% to $922 million due to the sale of its correctional facilities communication services business. Mid-Market Enterprise revenues fell to $665 million from $716 million in the year-ago quarter. Revenues in Wholesale tumbled 4.3% to $890 million.

Lumen anticipates witnessing healthy momentum in Quantum investments and fiber to the home investment strategy to bolster the growth of consumer and small business markets in the upcoming quarters. The company tapped 803,000 quantum fiber subscribers in the reported quarter. Its fully funded 2022 Quantum Fiber plan is expected to bolster higher average revenue per user, lower churn and significant customer lifetime value on the back of best-in-breed Quantum experience and product capability.

Other Quarterly Details

Total operating expenses plunged 46.8% year over year to $3,686 million, primarily due to lower depreciation and amortization expense. Goodwill impairment charges in the prior-year quarter acted as a vital factor as well. Operating income was $1,161 million against an operating loss of $1,809 million in the prior-year quarter. Adjusted EBITDA (excluding special items) slipped to $2,088 million from $2,188 million for respective margins of 43.1% and 42.7%.

Cash Flow & Liquidity

In 2021, Lumen generated $6,501 million of net cash from operations compared with $6,524 million a year ago. Free cash flow (excluding cash special items) for the year was $3,742 million compared with $2,979 million in 2020. As of Dec 31, 2021, the company had $354 million in cash and cash equivalents with $27,428 million of long-term debt compared with the respective tallies of $406 million and $29,410 million in the year-ago period.

The company completed its $1 billion stock repurchase program and announced two major strategic asset sales in the quarter. Lumen returned nearly $2.1 billion to shareholders through quarterly dividends and stock repurchases.

2022 Outlook

For 2022, Lumen expects adjusted EBITDA in the range of $6.5-$6.7 billion. Free cash flow is projected between $1.6 billion and $1.8 billion. Capital expenditures are estimated between $3.2 billion and $3.4 billion. Effective income tax rate for the full year is estimated to be nearly 26%.

Moving Ahead

Despite soft revenues, Lumen ended the quarter with solid free cash flow generation driven by effective capital allocation priorities. Strategic partnerships and incremental investments in platform capabilities make it well-positioned to enhance customer experience. Based on these focused endeavors, Lumen expects to achieve its financial targets in the long run. The Monroe, LA-based company’s Quantum Fiber platform and IP-based network capacity also position it well to support customers and deliver long-term shareholders’ value.

Zacks Rank & Other Stocks to Consider

Lumen currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the industry are LiveRamp Holdings, Inc. RAMP, Smiths Group plc SMGZY and IQVIA Holdings Inc. IQV. While LiveRamp Holdings sports a Zacks Rank #1 (Strong Buy), Smiths Group and IQVIA Holdings carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for LiveRamp Holdings’ current-year earnings has been revised 55.9% upward over the past 60 days.

LiveRamp Holdings delivered a trailing four-quarter earnings surprise of 633.3%, on average. RAMP shares have lost 37.5% in the past year.

The Zacks Consensus Estimate for Smiths Group’s current-year earnings has remained steady at 92 cents per share over the past seven days.

Smiths Group’s shares have gained 4.7% in the past year. SMGZY has a long-term earnings growth expectation of 8.1%.

The Zacks Consensus Estimate for IQVIA Holdings’ current-year earnings has remained unchanged at $8.91 per share over the past 60 days.

IQVIA Holdings delivered a trailing four-quarter earnings surprise of 6.9%, on average. The stock has rallied 32.5% in the past year. IQV has a long-term earnings growth expectation of 16.2%.


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