CLWR Clearwire Corp. - Class A (MM)

CenturyLink Inc. (CTL) reported mixed fourth quarter and full-year 2012 results, reflecting strong contributions from broadband, Prism TV, fiber-to-the-tower and data hosting units along with high demand from customers and low operating expenses. These were partially negated by losses in access line and poor performing legacy services.  

The company posted quarterly adjusted earnings of 67 cents per share, missing the Zacks Consensus Estimate by a penny. Comparing with the prior-year quarter, the results improved 21.8% from 55 cents.

Quarterly revenues of $4,583 million surpassed the Zacks Consensus Estimate of $4,581 million. However, revenues fell from the fourth quarter 2011 mark of $4,653 million.

For full-year 2012, CenturyLink posted earnings per share of $2.67 (in-line with our projection and up 1.1% year over year). Revenues increased 19.7% year over year to $18,376 million.

Segment Results

Regional Markets revenues declined 3.9% year over year to $2,445 million in the reported quarter. Slowdown in the legacy business was mainly responsible for the decline. The segment registered Prism TV subscriber growth over 10,000.

Wholesale Markets revenue was $908 million in the fourth quarter, down 5.5% year over year, primarily due to lower copper based revenue. Further, implementation of the CAF (Connect America Fund) rate reduction also impacted the segment result.

Enterprise Markets – Network generated revenues of $671 million in the reported quarter, up 5.7% on a year-over-year basis. The growth was fueled by high-bandwidth offerings and data integration revenues.

Enterprise Markets – Data Hosting revenue increased 12.7% year over year to $292 million, driven by growth in managed hosting, cloud services, colocation alongside financials and consumer solutions.

Subscribers

At the end of 2012, total access lines were 13.748 million compared with 14.584 million in the prior year. CenturyLink added nearly 41,000 high-speed Internet customers during the year, thus bringing the total to 5.848 million (up 3.5% year over year).

Liquidity

CenturyLink exited 2012 with $211 million of cash and cash equivalents compared with $128 million at the end of fiscal 2011. Long-term debt decreased to $19,400 million from $21,356 million at year-end 2011. The company generated operating cash flow of $7,656 million in 2012, while free cash flow was $3,332 million.

Management authorized a new share repurchase program of to an aggregate $2.0 billion through open market transaction. The program is expected to be completed by the Feb 13, 2015.

CenturyLink also plans to trim its quarterly dividend rate by 25.5% to 54 cents from 72.5 cents per share. The new rate will likely be approved in a meeting on Feb 26, and be effective from the March dividend payout.

Guidance

For the first quarter of 2013, the company expects earnings and operating revenues in the range of 67 cents to 72 cents and $4.46 billion to $4.51 billion, respectively. Operating cash flows are expected to range between $1.83 billion and $1.88 billion.

For full-year 2013, CenturyLink expects revenues in the range of $18.1-$18.3 billion, reflecting a drop of 0.5% to 1.5% from the last year. Adjusted EPS is expected in the range of $2.50 to $2.70. Operating cash flows will likely be in range of $7.3 billion to $7.5 billion.

Other Stocks

Other stocks worth considering within the sector are RF Micro Devices Inc. (RFMD) – that carries a Zacks Rank #1 (Strong Buy), Clearwire Corporation (CLWR) and Ruckus Wireless Inc. (RKUS). Both hold a Zacks Rank #2 (Buy).

Our Analysis

CenturyLink has a Zacks Rank #3, implying a Hold rating. We believe that the company is making significant progress in key areas like broadband expansion, completing fiber builds, cloud computing and Prism TV, which are expected to improve profitability over the coming quarters.
 

 
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