Global Crossing: Currency, Camelot Slow Things Down

glbc reported earnings after the bell today, showing some pressure from the economy but mostly the effects of the foreign exchange markets and the final runoff of the Camelot revenue.  Revenues of $609M included another $20M sequential hit from the currency markets, so on a constant currency basis they generally met expectations.  As compared with my own predictions – which did not include the currency effects either – I had not included the Camelot contract churn in my calculations (roughly $8M sequentially according the company) else I’d have been pretty close.  In other words, revenues saw some pressure worldwide from the economy, but nothing unexpected.  OIBDA of $75M was a bit lower than I projected due to seasonally higher costs, but nothing major and overall results were very much in-line with guidance.  Full year guidance was maintained.

I had the chance to chat with CFO John Kritzmacher, CMO David Carey, and CAO Gary Breauninger shortly after the earnings release, from which I was able to glean the following:

• Pricing – While the dynamic is different across product lines and customer segments, there were no big changes from Q4.
• Demand – Long term trends remain intact, short term trends reflect caution.
• Camelot – The churn from the ending of this contract is now over, so we might see GCUK do more than run in place at last.
• SG&A – They remain focused on keeping costs tightly under control during this environment, but while it may continue to drop as the year goes on it would be wrong to expect anything dramatic.
• Credit markets – Some early signs of normalcy, but there is a long way to go.  Funding M&A in the sector would still require substantial creativity.
• CDN business – Having just begun, revenues are of course quite small.  They seem content to follow the resale path for a while yet.
• Capex and free cash flow – While the working capital pendulum swung negative in Q1, nothing has changed otherwise.  Capex at these levels is probably where we should expect it given revenue trends.

Hopefully soon we can get past the wild fluctuations in the currency markets soon, they make it so incredibly hard to follow the progress of companies like Global Crossing.  Overall, while the colocation and wireless businesses are holding up extremely well, the economy clearly has taken a bigger toll on the bandwidth sector.   Level 3 Communications (NYSE:LVLT, news, filings) took a bigger hit last week of course, but I’m seeing that in a less harsh light than I was.

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Categories: Financials · Internet Backbones