Will Lower Revenues Hurt CenturyLink (CTL) Q1 Earnings?

CenturyLink, Inc. CTL is scheduled to report first-quarter 2019 results after the closing bell on May 8. In the last reported quarter, the company delivered a positive earnings surprise of 2.8%.

CenturyLink is likely to report lower revenues owing to challenging macroeconomic environment and higher investments to transform its legacy business model. Whether this will affect its quarterly performance remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

During the quarter, CenturyLink continued its investment spree to transform its business operations through product evolution and digitizing of customer interaction. The company expanded its content delivery network in Latin American countries like Chile, Brazil and Mexico in order to cater to the increased demand from entertainment and enterprise customers for fast, reliable and scalable content.

CenturyLink also augmented its voice and real-time communication capabilities in the quarter by expanding its service portfolio to include Cisco BroadCloud Flex. This secure cloud-based calling platform offers an integrated solution for customers with state-of-the-art infrastructure and support system.   

At the same time, the company collaborated with local government agencies with the State of New Mexico to offer secure cloud solutions to transfer highly sensitive data across the platform. By supplying cybersecurity, cloud, managed hosting and IT services over its modern carrier-class network, CenturyLink provides government agencies with the security and reliability they need to carry out their important missions. All these initiatives are likely to be reflected in the upcoming results.

Top-Line Contraction

Despite significant thrust on infrastructure development to improve long-term revenue growth prospects, CenturyLink is likely to record lower revenues in the first quarter year over year owing to secular declining trends. The Zacks Consensus Estimate for revenues from the Business segment, which accounts for the lion’s share of total revenues, is currently pegged at $4,268 million. For the first quarter, revenues from Consumer are expected to be $1,282 million. The consensus estimate for total revenues stands at $5,729 million, indicating a decline from $5,945 million reported in the year-earlier quarter.

Earnings Whispers

Our proven model does not show that CenturyLink is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and Zacks Consensus Estimate, is -6.14%. This is because the Most Accurate Estimate is 26 cents and Zacks Consensus Estimate is pegged at 27 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

CenturyLink, Inc. Price and EPS Surprise


CenturyLink, Inc. price-eps-surprise | CenturyLink, Inc. Quote

Zacks Rank: CenturyLink has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to make us confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Electronic Arts Inc. EA has an Earnings ESP of +11.35% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

SeaWorld Entertainment, Inc. SEAS has an Earnings ESP of +16.13% and a Zacks Rank #3.

Rent-A-Center, Inc. RCII has an Earnings ESP of +21.98% and a Zacks Rank #1.

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Rent-A-Center, Inc. (RCII): Free Stock Analysis Report

SeaWorld Entertainment, Inc. (SEAS): Free Stock Analysis Report

Electronic Arts Inc. (EA): Free Stock Analysis Report

CenturyLink, Inc. (CTL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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