CenturyLink (CTL), formerly CenturyTel Inc, announced third-quarter 2009 results with adjusted (excluding non-recurring items or non-GAAP) earnings per share of 90 cents beating the Zacks Consensus Estimate of 81 cents. Non-recurring items includes integration costs associated with the Embarq acquisition (completed on Jul 1, 2009). 

Adjusted net income surged to $269.1 million from $82.8 million registered in the year-ago quarter, driven by the contributions from Embarq. Reported net income (GAAP) of $280.8 million or 94 cents per share, reflects an increase from $84.7 million or 83 cents per share registered a year ago. 

Revenue: The company reported operating revenue of $1.87 billion, a significant increase compared to $650 million reported a year ago, fuelled by the Embarq acquisition which contributed $1.3 billion in the quarter. Revenues for voice, network access and data services increased compared to the year-ago quarter. 

Subscriber Total access lines at the end of the quarter were 7.19 million (including Embarq’s access lines) compared to 2.07 million a year-ago. CenturyLink added more than 43,500 high-speed Internet customers during the quarter (a 52% sequential increase), bringing the total high-speed Internet subscriber base to 2.19 million. 

Dividend & Cash Flow: CenturyLink paid a cash dividend of $0.70 per share in the third quarter leveraging healthy free cash flow which registered approximately $372 million in the quarter, excluding non-recurring items and acquisition related capital expenditures. 

Outlook: CenturyLink has released its guidance for fourth-quarter 2009. The company expects consolidated revenues (including Embarq’s contribution) of $1.81-$1.85 billion and projects earnings per share in the range of 84 cents to 88 cents. For full-year 2009, CenturyLink expects earnings per share in the range of $3.45 to $3.50, an increase from $3.20 to $3.30 as per previous expectation. 

The company expects to achieve cost synergies of $12 million from the Embarq acquisition in the fourth quarter. CenturyLink emerged as one of the largest rural telecom carriers in the US following its acquisition of Embarq Inc in Jul 2009. The acquisition will be accretive to the integrated company’s free cash flow in 2010, the first full year following the completion of the transaction. 

While the merger with Embarq may ultimately yield a number of operational benefits and cost synergies, significant integration challenges may impede near-term operating performance. In our opinion, growth momentum for CenturyLink’s broadband Internet business is more than offset by losses in wireline voice business and higher cash outlays. 

The company continues to experience organic decline in voice access lines as it contends with burgeoning competition from other service offerings from cable operators, such as VoIP services. Moreover, CenturyLink operates with high debt (approximately $8.2 billion), primarily due to the assumption of $5.8 billion of Embarq debt.
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