Earnings Preview: Level 3 Seeks to Hold Its Gains

April 28th, 2014 by · 1 Comment

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
(my guess)
Comments
 - 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
Other Costs  
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%
 
Capital Expenditures 169  208 194 189 190-200
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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  • Anonymous says:

    Some 15 years or so and they finally are making a paltry profit and sitting at 2.50/share presplit. Comical.

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