Increased Business Sales Deliver Silver Lining In CenturyLink's Rocky Q2

Telecommunications giant CenturyLink posted disappointing financial results for the second quarter, but business sales were the bright spot for the carrier, growing 15 percent sequentially.

Business services, including high-speed Internet and high-bandwidth data services like MPLS and Ethernet, experienced solid growth during the quarter. High-bandwidth data services revenues from retail business customers grew 12.5 percent year over year, according to CenturyLink executives.

But despite success in its business segment, CenturyLink's revenue and earnings fell short of the company's expectations and analysts' predictions.

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"CenturyLink's results for the second quarter were below our forecast and [Wall] Street consensus, primarily due to continued pressure on wholesale revenues and higher employee and benefit costs. ... Basically, we just didn't get the job done here," said Glen Post III, CenturyLink's CEO and president, during a conference call Wednesday with financial analysts.

Earnings for the second quarter, ended June 30, were $143 million, or 26 cents per share, compared with earnings of $193 million, or 34 cents per share, in the year-ago quarter. Core revenue hit $4.02 billion, while operating revenue for the quarter dipped to $4.42 billion, down from $4.54 billion in the same quarter last year. Adjusted earnings for the quarter dropped to $308 million, or 55 cents per share, down from $408 million, or 72 cents per share, a year ago.

Analysts expected adjusted earnings of 60 cents per share on $4.43 billion in core revenue.

Businesses of all sizes are migrating to high-bandwidth data services and the cloud, and CenturyLink's recent data center expansion has opened the door to take advantage of a lot more cloud and managed services opportunities, said Vince Bradley, CEO of Malibu, Calif.-based telecom master agent and connectivity services distributor World Telecom Group (WTG).

CenturyLink's Post said he expects business services will remain a bright spot into 2016.

"We continue to see demand for high-bandwidth Internet services like MPLS and we [will be] taking advantage of this opportunity," he said.

He also noted that changes to its sales force are beginning to pay off.

"The sales force realignment that we completed earlier this year is gaining traction and beginning to positively impact our [business] results. … We exited the second quarter with a strong funnel of sales opportunities, which has continued to grow," Post said.

CenturyLink has stepped up its efforts around cloud technology and big data with some recent acquisitions, including cloud management company Tier 3. CenturyLink Cloud customers have more than doubled over the past year, executives said during the call.

CenturyLink has also been focused on the SMB space, and executives promised even more attention to this commonly underserved market. "We see an opportunity for investing in [the SMB space] to drive revenue," Post said.

"This is a smart move by [CenturyLink] because outside of the territory where they are the local telephone company, they are pretty enterprise/up-market-focused," WTG's Bradley said.

A bright spot on CenturyLink's consumer business line was fiber-optic-based Prism TV service. According to the company, 8,400 new Prism TV customers were added during the second quarter, up to about 258,000.