Level 3 Communications (LVLT) reported earnings this morning, with mixed results. Communications EBITDA was $257M, above the expectations of many, a feat accomplished with continued impressive cost savings. Good thing too, because revenue growth continued to lag a bit, with total revenues of $1.070B, and core revenues of $964M. Free cash flow was $-4M, or basically neutral. Comparing with my estimates in yesterday's primer, I wasn't too far off.
Looking forward, the company was forced to reduce guidance for revenue growth from its 8-13% range to 7.5%. At this point everyone knew that 8% was the likely best result for this number, so the reduction isn't all that large and not all that surprising all things considered. But it was still a bit of a letdown, Level 3 will need to return to double digit revenue growth in 2009 if it wants to earn back the respect it once had as a growth engine. EBITDA guidance was narrowed to between $980M and $1.0B, which implies that Q4 EBITDA will be $268M +/- $10M.
As for the effects of macroeconomic trends, the company reported some lengthening of sales cycles in its wholesale and business markets group, but nothing really material so far. In the content business, they saw pullbacks in spending by some content owners that depend on financing, but increases from larger customers. European revenues remained strong and have as yet shown no effects from the financial crisis.
The company did manage to buy back $39M of its 2009 debt and $32M of its 2010 debt at a discount in the third quarter. Hopefully they have continued that trend in October at even lower rates. As expected, the company will continue to work on refinancing the 2010 debt, but doesn't need to make a move just yet. All in all, a mixed report that certainly wouldn't have satisfied anyone with the stock at $3.50, but at $1.25 it is actually probably better than the street expected.
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