A month has gone by since the last earnings report for Lumen (LUMN). Shares have added about 3.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lumen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lumen reported fourth quarter of 2024 adjusted earnings (excluding special items) of 9 cents per share, which significantly outpaced the Zacks Consensus Estimate of a loss of 8 cents. The company reported earnings per share of 8 cents in the prior-year quarter.
Quarterly total revenues were $3.329 billion, down 5.4% year over year. This decline was mainly due to the negative impact of divestitures, commercial agreements and the sale of the CDN business. However, the metric beat the Zacks Consensus Estimate by 3.4%.
For 2024, total revenues were $13.1 billion, down 10% from 2023.
Driven by significant AI-fueled connectivity demand, Lumen secured a total of $8.5 billion in PCF deals in 2024. As AI needs surge, large companies across various industries are urgently seeking fiber capacity, which is becoming highly valuable and potentially scarce. Lumen has inked deals with various tech giants like Microsoft, Amazon, Google Cloud and Meta Platforms to provide the network capabilities for AI innovation. LUMN also remains focused on “cloudifying” telecom and driving the adoption of its network-as-a-service solutions.
The company repaid $1.6 billion of overall debt in 2024 and sent redemption notices for another $200 million of debt recently. LUMN expects $1 billion of operating expenses including network expenses that it plans to eliminate by 2027. In the current year, it expects more than 250 million of run-rate cost benefit.
By segment, business revenues fell 5.1% to $2.659 billion while revenues from Large Enterprises plunged 5.5% to $845 million. Mid-Market Enterprise revenues declined 9.8% to $452 million. Public Sector revenues were up 11% to $554 million. Revenues of North America’s Enterprise Channels were down 2.2% to $1.851 billion. The metric for Wholesale decreased 4.5% to $716 million.
Revenues from Mass Markets were down 6.3% year over year to $670 million.
Lumen anticipates witnessing healthy momentum in the Quantum business going forward as it plans to launch Quantum Fiber quote-to-cash network architecture to customers in late 2025.
The company added 42,000 Quantum fiber subscribers, taking the count to 1.1 million in the reported quarter.
In the fourth quarter, LUMN added 105,000 Fiber broadband-enabled locations. As of Dec. 31, 2024, the total enabled locations in the retained states were 4.16 million. The company is targeting to achieve 500,000 enabled locations in 2025.
Total operating expenses decreased 40% year over year to $3,175 million.
Operating income was $154 million compared with a loss of $1.776 billion in the year-ago quarter. Adjusted EBITDA (excluding special items) slipped to $1.052 billion from $1.099 billion for respective margins of 31.6% and 31.2%.
In the fourth quarter, Lumen generated $688 million of net cash from operations compared with $784 million in the prior-year quarter.
Free cash outflow (excluding cash special items) for the fourth quarter was $174 million compared with free cash flow of $50 million in the prior-year quarter. This downtick was due to timing of cash from PCF deals.
As of Dec. 31, 2024, the company had $1.889 billion in cash and cash equivalents with $17.494 billion of long-term debt compared with the respective figures of $2.64 billion and $18.142 billion as of Sept. 30, 2024.
For 2025, Lumen expects adjusted EBITDA in the band of $3.2-$3.4 billion and capital expenditures to be between $4.1 billion and $4.3 billion. EBITDA in 2025 is expected to be below the levels of 2024, owing to the investments in transformation and costs, along with higher startup costs for PCF sales and legacy revenue declines. LUMN expects EBITDA to significantly rebound in 2026 and be more than $3.5 billion. It also anticipates that the metric will register growth thereafter.
Higher capex expectations are mainly due to the costs of executing the signed PCF contracts.
Free cash flow is expected to be between $700 million and $900 million.
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Lumen has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lumen has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Lumen is part of the Zacks Technology Services industry. Over the past month, Gen Digital (GEN), a stock from the same industry, has gained 0.2%. The company reported its results for the quarter ended December 2024 more than a month ago.
Gen Digital reported revenues of $986 million in the last reported quarter, representing a year-over-year change of +3.5%. EPS of $0.56 for the same period compares with $0.49 a year ago.
Gen Digital is expected to post earnings of $0.58 per share for the current quarter, representing a year-over-year change of +9.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Gen Digital. Also, the stock has a VGM Score of C.
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This article originally published on Zacks Investment Research (zacks.com).
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