Last quarter, Level 3 Communications busted through the break-even mark at long last with a big fourth quarter. On Wednesday morning we get to see if the trend holds, or almost holds given the seasonal revenue hesitation the company generally sees in the first quarter. I've followed Level 3 closely here over the years, and so here are my quarterly earnings guesstimates:
|$ in millions||Q1/13||Q2/13||Q3/13||Q4/13||Q1/14
|- North America – Wholesale||372||367||365||374||372||In Q1, they are looking to hold the gains from
that big Q4 rather than see sequential growth.
Enterprise revenues should hold on stronger
than wholesale as usual
|- North America - Enterprise||595||603||622||651||652|
|- EMEA – Wholesale||89||88||88||89||88||Hoping for a solid start to the year in Europe,
but nothing particularly strong yet.
|- EMEA – Enterprise||97||99||102||105||105|
|- EMEA – UK Government||37||33||32||29||28|
|- Latin America – Wholesale||40||40||39||41||42||Should continue to lead the way.|
|- Latin America – Enterprise||142||149||149||154||155|
|Total Core Network Services||1,372||1,379||1,397||1,443||1,442||CNS just barely down sequentially is my guess|
|- Wholesale Voice & Other||205||186||172||159||150||Same trend, wholesale voice isn't much fun anymore.|
|Total Comm. Services||1,577||1,565||1,569||1,602||1,592||Down but mostly due to declining wholesale voice.|
|Comm. COGS||629||616||608||618||613||Extra SG&A due to the shift of some
non-cash compensation to cash.
|Comm. Cash SG&A||562||562||576||518||541|
|Comm. Adjusted EBITDA||386||387||385||466||438||Flat with the prior quarter.|
|Adjusted earnings per share||(0.36)||(0.11)||(0.09)||0.06||0.25||Quite a jump from the break-even point,
but analysts have it even a few cents higher.
|Adj. Gross margin %||60.1%||60.6%||61.2%||61.4%||61.6%|
|Adj. EBITDA margin %||24.5%||24.7%||24.5%||29.1%||27.5%|
|Free Cash Flow||(162)||8||(90)||197||(50)-(100)||Swinging back negative as it always is in Q1.
But not as negative as in past years.
In other words, with the exception of a shift of non-cash stock compensation to the cash side of SG&A and the usual working capital swing into the red, this quarter should look a lot like last quarter except more profitable. That's what the company seemed to be projecting during their Q4 call in February, albeit with very broad strokes.
While Level 3's stock price has been up, holding in the mid-30s, in pre-reverse-split terms it remains below what used to be the $2.50 mark. There's a lot of room for growth there still, but the market is still waiting to see proof of the long-awaited improving revenue momentum.
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