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CenturyLink: Faster Integration Driving Brighter Future

Carol Wilson

Despite a dip in revenues in the second quarter, CenturyLink exceeded analyst expectations and pleased the investor community even more by boosting its full-year 2018 guidance. President and CEO Jeff Storey and CFO Sunit Patel painted a rosier picture of its immediate future for industry analysts in the earnings call, saying the company expects to do better with both its business and consumer markets. (See CenturyLink Posts Q2 Earnings, Upgrades 2018 Outlook .)

Key to that optimism is the fact that integration of CenturyLink Inc. (NYSE: CTL) and Level 3 Communications is actually ahead of schedule, Storey and Patel reported, and the immediate result is the ability to take a stronger combined product portfolio to business customers. The company reported already achieving annualized run-rate adjusted EBITDA synergies of $675 million in the second quarter as well as $162 million in integration expenses.

"We have a detailed rationalization roadmap across our company's extensive portfolio and are actively working to implement that roadmap," including launching some of the most important products already, Storey said. "By combining the best of both companies' portfolios, we are ending up with better products than either of the previous two companies would have had on their own" which has allowed CenturyLink "to compete for a broader set of opportunities."

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CenturyLink reported earnings of $292 million, or 27 cents a share, in the second quarter, compared with $69 million, or 6 cents a share, a year ago. Revenue fell to $5.90 billion, compared with $6.04 billion in 2017. For the year, CenturyLink raised its outlook for the year, predicting adjusted profits between $9 billion and $9.15 billion for 2018, compared with a previous outlook of profit between $8.75 billion and $8.95 billion.

That optimism is based on the belief that CenturyLink is poised to significantly grow its business revenues, according to Storey and Patel, even though there were slight declines in every segment this quarter, including enterprises, small to midsized businesses and wholesale. Patel said one reason for the revenue decline, which was 1.6% overall in the business sector, was that CenturyLink is taking a hard look at its businesses and choosing to walk away from deals that aren't as profitable -- Storey called them "low-calorie business" -- and took a hit this quarter for re-negotiation of one such large contract with a European-based company. Patel said the result of the renegotiation is lower revenue but a better return.

A small decline in small to medium business revenues reflected the ongoing effort to "manage through a decline in legacy voice services," Patel said. But that business is expected to pick up as CenturyLink's sales teams take advantage of a larger number of on-net businesses post-merger and target the small to midsized residents of those businesses, he said.

Storey also pointed to General Mills as a new enterprise customer that both CenturyLink and Level 3 had served in the past, but without being the primary provider. Now the combined company has captured that business and with it, "we will grow our share of wallet." In general, as businesses look to get one provider to help them manage their complex IT/cloud/communications businesses, he believes CenturyLink is better poised to capture more of those bigger deals.

On the consumer side, the good news story was Price for Life, the CenturyLink initiative that gives consumers a fixed price for high-speed Internet. Not only is the program driving an increase in sales and moderating the company's declining consumer revenues but it is reducing calls into the customer service center, Patel said.

— Carol Wilson, Editor-at-Large, Light Reading

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