CenturyLink’s M&A Details Hold Back Q2 Earnings

August 3rd, 2011 by · 1 Comment

While its acquisition of Savvis recently has dominated its news for the past few months, it was those pesky details of the merger with Qwest that slowed down CenturyLink (NYSE:CTL, news, filings) in the second quarter.  Revenues of $4.41B were just slightly below expectations, while earnings per share took a $0.20 non-cash hit amidships as Centurylink's fair value assessment of the Qwest assets led to an additional $200M in depreciation and amortization.  Without that contribution, earnings per share of $0.64 were within guidance but still a couple of pennies below analyst expectations.

Operationally, it is clear that the company is working very hard on the integration front, and says everything is on track.  They have achieved $350M of the $375M from the Embarq deal, with the remainder to be complete by year end.  They have achieved $70M in annual run rate synergies from Qwest, which should total $200M by year end.  And of course, they're just getting started on Savvis.  On the three M&A transactions and integrations they spent $25M, $245M, and $18M respectively during the second quarter.

The rest of the story is the usual wireline declines balanced only partly by strategic revenue growth.  CenturyLink also began breaking things down into three segments:  Regional Markets, Business Markets, and Wholesale markets, which turned in revenues of $2.26B, $922M, and $975M, respectively.  All three of those were down between 4 and 5 percent from the same quarter last year.

CenturyLink also updated their guidance to reflect the Savvis acquisition.  For the full year 2011 they now expect revenues of $15.2-15.4B, diluted EPS of $1.60-1.70, and free cash flow of $2.9-3.1B.  They were also kind enough to offer up Savvis Q2 numbers as well, showing revenues of $264M were up solidly from the first quarter.  Just where CenturyLink takes the Savvis assets and brand from here will be a key thing to keep an eye on, obviously.

Investors were not particularly pleased with the company's Q2, as the stock is down a buck and change so far today, but there doesn't seem to be anything huge underlying that sentiment - at least from my point of view.

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Categories: Financials · ILECs, PTTs

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  • Anon says:

    Rob, what do you mean nothing “huge” underlying the (negative) sentiment? Think you noted : asset impairment charges, an earnings miss (even post charges), line losses and 4-5% revenue shrinkage in all 3 operating segments. Sounds great. Also, how’s the balance sheet?

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