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Level 3 Communications (LVLT) Q1 Earnings, Revenues Lag

Level 3 Communications Inc. LVLT reported weak financial results in the first quarter of 2016 wherein both the top and the bottom line lagged the Zacks Consensus Estimate.

On a GAAP basis, net income in the reported quarter was $124 million, or 34 cents per share compared with net income of $122 million, or 35 cents per share in the first quarter of 2015. Quarterly earnings per share of 34 cents were well below the Zacks Consensus Estimate of 45 cents.

First quarter total revenue was $2,051 million, flat year over year but short of the Zacks Consensus Estimate of $2,078 million.

Segment-wise, Core Network Services (CNS) revenues came in at $1,947 million, up 2.3% year over year. Wholesale Voice Services and Other revenues totaled $104 million, down 17.5% year over year.

Geographically, North America generated $1,604 million in CNS revenues, up 4% year over year. Europe, the Middle East and Africa accounted for $191 million of revenues at CNS, down 5% while Latin America contributed $155 million, down 5%.

Total operating expenses in the reported quarter were $1,689 million, down 2.8% year over year. Operating income came in at $362 million, up 14.6%. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was up 14.5% to $710 million. Adjusted EBITDA margin expanded to 34.6% from 30.5% in the prior-year quarter.

In the first quarter of 2016, Level 3 Communications generated $410 million of unlevered cash from operations compared with $293 million in the year-ago quarter. Free cash flow in the reported quarter was $324 million compared with $188 million in the prior-year quarter.

At the end of the first quarter of 2016, the company had $1,004 million of cash and cash equivalents and $11,651 million of outstanding debt compared with $854 million and $11,009 million, respectively, at the end of 2015. Meanwhile, the debt-to-capitalization ratio was 0.51 compared with 0.52 at the end of 2015.

Guidance

For 2016, Level 3 Communications expects adjusted EBITDA to grow 10% to 12% on a year-over-year basis. Free cash flow is estimated at $1 billion to $1.1 billion.

Zacks Rank & Other Stocks to Consider

Level 3 Communications currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in this sector include ADTRAN Inc. ADTN, Finisar Corp. FNSR and DISH Network Corp. DISH. All three stocks currently carry a Zacks Rank #2 (Buy).

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ADTRAN INC (ADTN): Free Stock Analysis Report
 
LEVEL 3 COMM (LVLT): Free Stock Analysis Report
 
DISH NETWORK CP (DISH): Free Stock Analysis Report
 
FINISAR CORP (FNSR): Free Stock Analysis Report
 
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