CenturyLink (CTL) Q2 Earnings Top, Revenues Lag Estimate

CenturyLink Inc. (NYSE:CTL) reported mixed financial results in the second quarter of 2016, wherein the bottom line outpaced the Zacks Consensus Estimate while the top line came in slightly below the consensus.

CenturyLink posted second-quarter 2016 adjusted earnings per share of 63 cents, surpassing the Zacks Consensus Estimate of 59 cents. GAAP net income was $196 million or 36 cents per share compared with $143 million or 26 cents per share in the prior-year quarter.

Quarterly total revenue of $4,398 million was down 0.5% from the prior-year quarter and was slightly below the Zacks Consensus Estimate of $4,401 million. Of the total, Strategic revenues totaled $2,030 million, up 5.2% year over year. Legacy revenues accounted for $1,938 million, down 7.2%. Data Integration revenues grossed $123 million, down 14%. Other services contributed for the remaining $307 million, up 19%.

Quarterly operating expenses totaled $3,748 million, down 3.2% year over year. Meanwhile, operating income was $650 million compared with $549 million in the year-ago quarter.

Cash Flow

In the second quarter of 2016, CenturyLink generated $1,651 million of adjusted cash from operations compared with $1,624 million in the year-ago quarter. Adjusted free cash flow, in the reported quarter, was $617 million compared with $572 million in the year-ago quarter.

Liquidity

CenturyLink exited second-quarter 2016 with $191 million of cash and cash equivalents compared with $126 million at the end of 2015. At second-quarter end, total debt was $19,616 million compared with $20,225 million at the end of 2015. Meanwhile, the debt-to-capitalization ratio was 0.57, same with the end of 2015.

Segmental Results

Business segment revenues dropped 2.3% year over year to $2,597 million in the second quarter. Segmental profits were $1,110 million, down 3.8% year over year. Segmental profit margin was 42.7% versus 43.4% in the year-ago quarter.

Consumer segment revenues were $1,494 million, down 0.6% year over year. Segmental profits were $840 million, down 3.1% year over year. Segmental profit margin was 56.2% compared with 57.7% in the year-ago quarter.

Subscriber Statistics

As of Jun 30, 2016, total access lines were 11.413 million, down 5.7% year over year. High-speed broadband customer count was 5.99 million, down 1.9% and Prism TV customer was 0.311 million, up 20.5%. In the reported quarter, CenturyLink lost 66,000 high-speed broadband subscribers and 198,000 access lines but gained 9,000 Prism TV subscribers.

Q3 Outlook

For the third quarter of 2016, the company projects adjusted earnings per share and operating revenues in the range of 52 cents to 57 cents and $4.35 billion to $4.40 billion, respectively. Core revenues are estimated within the range of $3.90 billion to $3.95 billion. Operating cash flow is projected between $1.56 billion and $1.61 billion.

Stocks to Consider

CenturyLink currently carries a Zacks Rank #2 (Buy). Other favorably ranked stocks in the same sector are Cogent Communications Holdings Inc. (NASDAQ:CCOI) , Cincinnati Bell Inc. (NYSE:CBB) and Telecom Italia (MI:TLIT) S.p.A. (NYSE:TI) . All three stocks carry the same Zacks Rank as CenturyLink.