Lumen (LUMN) Q1 Earnings Beat Estimates, Revenues Fall Y/Y
4 min readLumen Technologies, Inc. LUMN reported mixed first-quarter 2021 results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. Lower revenues in the Business and Mass Markets segments led to year-over-year top-line deterioration.
Bottom Line
Net income in the March quarter was $475 million or 44 cents per share compared with $314 million or 29 cents per share in the year-ago quarter. The year-over-year improvement, despite top-line contraction, was primarily driven by lower operating expenses.
First-quarter adjusted net income (excluding special items) came in at $475 million or 44 cents per share compared with $374 million or 35 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
Lumen Technologies, Inc. Price, Consensus and EPS Surprise
Lumen Technologies, Inc. price-consensus-eps-surprise-chart | Lumen Technologies, Inc. Quote
Top Line
Beginning first-quarter 2021, Lumen made changes to its segment and customer-facing sales channel reporting categories to better align with operational changes. The company will now report its revenues in two segments — Business and Mass Markets.
Notably, the Business segment consists of International & Global Accounts (IGAM), Large Enterprise, Mid-Market Enterprise and Wholesale. Mass Markets includes Consumer and Small Business Group (SBG). The results for this quarter are discussed below.
Quarterly total revenues slipped 3.8% year over year to $5,029 million. This was due to lower revenues in the Business and Mass Markets segments. The top line missed the consensus estimate of $5,057 million.
By segment, Business revenues fell 3.8% to $3,595 million, due to lower sales in the IGAM, Large Enterprise, Mid-Market Enterprise and Wholesale. Soft demand for IP and Data services due to lower sales of hybrid networks with a reduction in voice revenues acted as major headwinds as well. Revenues from Mass Markets decreased to $1,434 million from $1,491 million in the year-earlier quarter, led by decline in voice revenues.
IGAM revenues fell 2.7% year over year to $1,013 million, impacted by Content Delivery Network rerates and lack of customer interaction. Revenues in Large Enterprise declined 3% to $937 million due to lower sales and conclusion of several projects in the public sector. Mid-Market Enterprise revenues fell to $716 million from $761 million in the year-ago quarter. Revenues in Wholesale tumbled 4.1% to $929 million.
Markedly, Lumen anticipates witnessing healthy momentum in Quantum investments and fiber to the home investment strategy to bolster growth of consumer and small business markets in the upcoming quarters. The company tapped 715,000 quantum fiber subscribers in the reported quarter.
Other Quarterly Details
Total operating expenses decreased 4.8% year over year to $4,042 million, primarily due to lower cost of services and products. Operating income was $987 million compared with $980 million in the prior-year quarter.
Adjusted EBITDA slipped to $2,157 million from $2,209 million. The adjusted EBITDA margin was 42.9% compared with 42.3% in the year-ago quarter. Capital expenditures were $716 million compared with $974 million in the prior-year quarter.
Cash Flow & Liquidity
In the first three months of 2021, Lumen generated $1,525 million of net cash from operations compared with $1,299 million in the year-ago period. Free cash flow (excluding cash special items) in the quarter was $850 million compared with $385 million in the prior-year quarter.
As of Mar 31, 2021, the company had $486 million in cash and cash equivalents with $27,599 million of long-term debt.
2021 Outlook Restated
For 2021, Lumen expects adjusted EBITDA in the range of $8.4-$8.6 billion. Adjusted free cash flow is projected between $2.8 billion and $3 billion. Capital expenditures are estimated between $3.5 billion and $3.8 billion. Depreciation and amortization are expected within the range of $4.2-$4.4 billion. The effective income tax rate is likely to be 27%.
Moving Ahead
Despite weak revenues, Lumen ended the quarter with solid free cash flow generation driven by effective capital allocation decisions. Strategic partnerships and incremental investments in platform capabilities make it well positioned to deliver enhanced customer experience. Based on these focused endeavors, Lumen expects to achieve its financial targets in the long run. The Monroe, LA-based company’s Quantum Fiber platform and IP-based network capacity also positions it well to support customers and deliver long-term shareholders’ value.
Zacks Rank & Stocks to Consider
Lumen currently has a Zacks Rank #3 (Hold).
A few better-ranked stocks in the industry are Harsco Corporation HSC, 360 DigiTech, Inc. QFIN and AstroNova, Inc. ALOT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Harsco delivered a trailing four-quarter earnings surprise of 423.3%, on average.
360 DigiTech delivered a trailing four-quarter earnings surprise of 89.3%, on average.
AstroNova delivered a trailing four-quarter earnings surprise of 77.2%, on average.
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