CenturyTel (CTL), which now operates under the CenturyLink moniker, announced fourth quarter 2009 results with adjusted (excluding non-recurring items or non-GAAP) earnings per share of 95 cents beating the Zacks Consensus Estimate of 88 cents and the year-ago quarter EPS of 87 cents. Non-recurring items includes integration costs associated with the Embarq acquisition (completed on July 1, 2009).
Adjusted net income for the quarter surged to $286.7 million from $87 million registered in the year-ago quarter, driven by the contributions from Embarq. Reported net income (GAAP) of $230.2 million for the quarter reflects an increase from $100 million registered a year ago. For full year 2009, adjusted earnings per share of $3.60 also came above the Zacks Consensus Estimate of $3.45.
Revenue
Reported operating revenue for the quarter was $1.83 billion, a significant increase, compared to $643 million reported a year ago. This was fueled by the growth in broadband Internet customer base as well as Embarq acquisition, which contributed $1.27 billion in the quarter. Revenues for voice, network access and data services increased, compared to the year-ago quarter.
For full year 2009, revenue of $4.97 billion represents an increase from $2.60 billion registered a year ago. However, the quarterly and annual revenue came below the Zacks Consensus Estimate of $1.85 billion and $7.2 billion, respectively.
Subscriber
Total access lines at the end of the quarter were 7.04 million (including Embarq’s access lines), down 8.8% year-over-year. CenturyTel added nearly 47,000 high-speed Internet customers during the quarter (an 8% sequential increase), bringing the total high-speed Internet subscriber base to 2.24
million.
Dividend & Cash Flow
The Board of Directors declared a quarterly cash dividend of 72.5 cents per share, representing a 3.6% increase over the previous 70 cents per share quarterly dividend. The revised dividend is payable on March 22, 2010 to shareholders of record on March 9, 2010.
The dividend growth is supported by a healthy free cash flow which registered approximately $333.7 million in the quarter, excluding non-recurring items and acquisition related capital expenditures.
Outlook
CenturyTel has released its financial forecasts for 2010. The company expects consolidated revenues (excluding certain unusual items) to decline by 5.5%-6.5% year over year on account of lower access revenue, reduced universal service funding and access lines losses. Revenues are expected to
decline by 7.5%-8.5% taking into account the unusual items.
For full year 2010, CenturyTel expects earnings per share in the range of $3.10 to $3.20. For first quarter 2010, the carrier expects total revenues between $1.77 billion and $1.80 billion and earnings per
share of 84 cents to 88 cents. The current Zacks Consensus Estimate for first-quarter and full year 2010 EPS are 88 cents and $3.50, respectively.
Free cash flow for the year has been projected to be $1.475 to $1.525 billion with a dividend payout ratio of 57%-59%. Capital expenditure target for 2010 has been set between $825 and $875 million, roughly 15% lower than 2009 level of $1 billion.
CenturyTel has emerged as one of the largest rural telecom carriers in the US following its acquisition of Embarq. 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. The company achieved approximately $40 million in cost synergies from the acquisition in 2009 and expects to achieve synergies of $10 million in first-quarter 2010.
While the merger with Embarq may ultimately yield a number of operational benefits and synergies, significant integration challenges may impede near-term operating performance. Moreover, growth momentum for CenturyTel’s broadband Internet business is more than offset by losses in wireline voice
business.
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, CenturyTel operates with high debt (roughly $7.8 billion), primarily due to the assumption of $5.8 billion of Embarq debt.
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