Will Top-Line Woes Affect CenturyLink's (CTL) Q2 Earnings?

CenturyLink, Inc. (NYSE:CTL) is scheduled to report second-quarter 2019 results after the closing bell on Aug 7. In the last reported quarter, the company delivered a positive earnings surprise of 25.9%.

CenturyLink is likely to report lower revenues owing to challenging macroeconomic environment and higher investments to transform its legacy business model.

Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

During the quarter, CenturyLink continued its investment spree to transform its business operations through product evolution and digitizing of customer interaction. The company expanded its Ethernet Services portfolio to provide improved connectivity for enterprise customers. In particular, CenturyLink added multipoint-to-multipoint capabilities to its Ethernet E-Services portfolio to help businesses simplify bandwidth requirements, while creating multinational Wide Area Networks to minimize costs.

Furthermore, CenturyLink made significant investments in South Florida to provide a new network gateway that will manage the flow of data traffic and Internet across the region. The network gateway is connected to three long-haul fiber routes and a nearby network access point, where different sections of the high-speed backbone network are connected. The gateway is also connected to nearby sub-sea landing stations for seamless access to sub-sea communications cables and a large colocation facility that serves Latin America.

During the quarter, the company entered into an agreement with Streamroot — a leading provider of video delivery technologies for media groups and enterprise customers — to address subscribers’ burgeoning demand for over-the-top (OTT) digital platforms. Per the deal, CenturyLink will integrate Streamroot’s peer-to-peer networking solutions with its content delivery network for superior user experience. The move is likely to give a solid OTT delivery solution to broadcasters while bringing in a new standard for large-scale video delivery to audiences.

All these initiatives are likely to be reflected in the upcoming results.

Top-Line Contraction

Despite significant thrust on infrastructure development to improve long-term revenue growth prospects, CenturyLink is likely to record lower revenues in the second quarter year over year owing to secular declining trends. The Zacks Consensus Estimate for revenues from the Business segment, which accounts for the lion’s share of total revenues, is currently pegged at $4,186 million, implying a decline from $5,902 million recorded in the year-earlier quarter. For the second quarter, revenues from Consumer are expected to be $1,398 million, marginally up from $1,352 million reported a year ago. The consensus estimate for total revenues stands at $5,625 million, indicating a decline from $6,040 million reported in the year-earlier quarter.

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Earnings Whispers

Our proven model does not conclusively show that CenturyLink will beat earnings in the second quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP Filter .