Level 3: Lower Q3 Revenues
Shares of Level 3 Communications Inc. (Nasdaq: LVLT) fell $0.02 (0.42%) to $4.76 on Monday as the carrier announced lower third-quarter earnings projections. Separately, the company also said it expects to raise $500 million selling debt securities.
The bandwidth merchant now says it expects third-quarter revenues to be in the range of $865 million to $900 million, down from its July 24 projection of $930 million (see Buffett Boosts Level 3). The company has also cut its capital spending from $70 million to $60 million.
The adjustments reflected the previously announced sale of Midwest Fiber Optic Network (MFON), which came to Level 3 in its acquisition of Genuity. Level 3 paid $60 million in net cash for Genuity's bankruptcy estate back in February (see Level 3 Sells Part of Genuity Network, Level 3 Exits Genuity Hosting Business, and Level 3 Posts Loss, Closes Genuity Deal).
Level 3 also said it will raise $500 million by selling senior notes, due 2011, to "qualified institutional investors." The company expects to complete the offering during the first week of October and will use the proceeds to pay down some debt.
On that front, the company appears to be following analysts' advice to keep buying back its debt and making cuts to its long-distance transport business. But its debt problems aren't reassuring for shareholders.
Analysts see Level 3 achieving positive operating cash flow -- cash generated from operations -- next year. But Merrill Lynch noted this summer that it didn't expect Level 3 to have positive free cash flow -- cash left after paying bills and financing capital projects -- until 2010.
On the plus side, Level 3 continues to trim its business expenses. The company used $90 million in cash for operating activities during the first half of this year, down from $222 million during the year-ago period. But the strains of fighting off competitors and managing loads of debt continue to show.
"As we have said in the past, there continues to be economic weakness in the telecommunications sector," said James Crowe, CEO of Level 3 in a prepared statement. "As a result, top-line growth and visibility remain challenging."
— Phil Harvey, Senior Editor, Light Reading