When Level 3 reports its earnings on Wednesday morning, there is a good chance they will finally pass the threshold of break-even in a sustainable way. It’s close enough that one time events can swing the actual number around, but analysts have pegged the EPS number at $0.03 for the final quarter of 2013. Here are my guesses for the various numbers of interest in context with the prior four quarters as usual:
| $ in millions |
Q4/12
|
Q1/13 | Q2/13 | Q3/13 | Q4/13 (my guess) |
Comments |
|---|---|---|---|---|---|---|
| – North America – Wholesale | 392 | 372 | 367 | 365 | 371 | NA Enterprise should be a strong number, but for earnings as a whole to be strong the wholesale number has to do its part too. |
| – North America – Enterprise | 587 | 595 | 603 | 622 | 638 | |
| – EMEA – Wholesale | 87 | 89 | 88 | 88 | 88 | The usual European story on wholesale and UK government, with increasing success in enterprise. |
| – EMEA – Enterprise | 99 | 97 | 99 | 102 | 104 | |
| – EMEA – UK Government | 42 | 37 | 33 | 32 | 32 | |
| – Latin America – Wholesale | 41 | 40 | 40 | 39 | 40 | Better growth in Latin America this quarter, although I’m cautious given the Snowden security uproar in Brazil etc. |
| – Latin America – Enterprise | 143 | 142 | 149 | 149 | 152 | |
| Total Core Network Services | 1,391 | 1,372 | 1,379 | 1,397 | 1,425 | This would be 2% sequential CNS growth |
| – Wholesale Voice & Other | 223 | 205 | 186 | 172 | 160 | |
| Total Comm. Services | 1,614 | 1,577 | 1,565 | 1,569 | 1,585 | A hair below consensus estimates |
| Comm. COGS | 655 | 629 | 616 | 608 | 610 | The SG&A number could be better than this, but I’m assuming some cost savings are still in the pipeline. |
| Comm. Cash SG&A | 599 | 562 | 562 | 576 | 550 | |
| Other Costs | -47 | – | ||||
| Comm. Adjusted EBITDA | 407 | 386 | 387 | 385 | 425 | The previous quarter included $30M in severance |
| Adjusted earnings per share | (0.16) | (0.36) | (0.11) | (0.09) | 0.05 | Excluding one time expenses. |
| Adj. Gross margin % | 59.4% | 60.1% | 60.6% | 61.2% | 61.5% | |
| Adj. EBITDA margin % | 25.2% | 24.5% | 24.7% | 24.5% | 26.8% | |
| Capital Expenditures | 198 | 169 | 208 | 194 | ~200 | |
| Free Cash Flow | 202 | (162) | 8 | (90) | 100-200 | Including updated net cash interest guidance |
The fourth quarter tends to be Level 3’s better quarter in terms of revenue growth, but I have learned to temper my expectations as Level 3’s business covers enough ground that there is always something going the wrong way. That being said, unless something unexpected does appear there aren’t any obvious black clouds on the horizon threatening to ruin the profitable 2014 Level 3 has been aiming for. While we’re still waiting for higher growth rates, all the refinancing work Sunit Patel did last year should be ready to pay off.
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Level 3 is going full force a head, don’t take away the Super Punch Bowl yet. There is a Seattle sea change taking place, and the Level 3 Eagle is flying higher than any hawk. So says O. Mason Hawkins (the Hawks Win).
Better late than never…
does someone in the financial world know something I should . Another down day leading into earning.
Is Level 3 REALLY done playing kick the can? That is all they seem to know.
WTF are you talking about Snowden and Brazil for? Snowden’s the least of LVLT’s LatAm issues. (In fact, I don’t even understand the connection you’re trying to make.) More importantly, emerging markets have been imploding. Argentina is a basket case and that’s being kind given the hyperinflationary problem there. The Brazilian Real is down 18% over the last 12months and 9% in Q4.
As noted many times before those less valuable Reals mean something when you exchange them for US dollars to service dollar-denominated debt or to purchase equipment.
Sunit the magnificient may be refinancing that debt to lower debt service costs but if LVLT is losing value on those reals (and other latin currencies) he’s barely treading water. His refi efforts start to look a lot like George Jetson stuck on Astro’s treadmill.
Equally interesting will be revenue tied to LatAm. Somehow LVLT has avoided problems in LatAm but at some point LatAm’s troubles will impact LVLT. It’s just a matter of time.
annonymous. if lvlt does the majority of their business with multi nationals in argentina i am guessing they are pricing those contracts in dollars. any business they do at the “official rate” and not the azul mercado with non multi nationals would be a mess. i think sunit should say how they are pricing those
Todd, for multinationals with b-ends in LatAm, I agree the contracts are in USD but that is not the majority of the LatAm revenue.
LVLT doesn’t break out its LatAm revenue by country in their financials so it’s hard to say how much of LatAm’s worst performing currency country, Argentina, represents.
I had to go all the way back to 2nd Quarter 2006, the last public Impsat quarterly report before Global Crossing acquired them, to find a distribution of revenue by country. (This distribution has changed wildly since then, I’m sure!) At that time, the largest percent of revenue came from Argentina at 27%. Brazil at time was 24%. Colombia at time 24%.
None of the LatAm currencies has done well vis the USD last year, but Argentina presents the biggest risk with a decline in value of 26% over the last 90 days, most of which happened on January 23.
I do think Sunit will certainly discuss the Argentina currency issue but how deeply he goes on LatAm currencies and problems will be up to analysts during Q&A.
I have to say that their numbers look very impressive. And my comments about LatAm seem wholly unfounded b/c they’re humming along nicely.