Level 3 narrows losses in Q2, but results disappoint analysts

Level 3 Communications (Nasdaq: LVLT) losses may have decreased in Q2, but its inability to meet financial analyst targets drove its stock down 11 percent. As of the end of Tuesday's trading session, Level 3's stock was trading at $1.09 on Nasdaq.

During the quarter, Level 3's revenue declined four percent to $908 million, missing analyst estimates of $909.8 million. Making matters worse was that Level 3's capex increased 30 percent to $104 million. Like much of the wireline-centric carriers selling wholesale capacity to other carriers and businesses, Level 3's customers, prompted by the worldwide recession, either cut or held off buying new capacity services over the past year.

Despite the sluggish Q2 results, Level 3 said it is slowly digging itself out of its ongoing revenue hole with a pipeline of deals that it says will help drive up revenue in upcoming quarters.

One segment Level 3 is confident about is Core network service (CNS), which contributed to 77 percent of its Q2 2010 revenue and grew sequentially 1.3 percent, is on track to grow sequentially throughout 2010.

"Our Core Network Services sales increased for the third consecutive quarter, and we believe this is a good indicator of the improved performance we expect in the second half of the year," said James Crowe, CEO of Level 3 in the earnings release.

In addition to CNS, Level 3 saw relatively positive results from its wholesale core network services and large enterprise and federal businesses, which grew 2 percent and 4 percent sequentially.

While Level 3's Q2 results weren't anything to write home about, Colby Synasael an analyst with Cowen & Co analyst said in a Reuters article that part of the stock reaction "may be based off of Global Crossing (Nasdaq: GLBC) which had disappointing results in terms of revenue."

For more:
- here's the earnings release
- Reuters has this article

Related articles:
Level 3 reports Q1 earnings decline
Level 3 drives down latency for financial centers
Karl Strohmeyer, Senior VP of Wholesale for Level 3 Communications - Wholesale Allstars
Level 3 simplifies Ethernet interconnection through CENX
Level 3 targets Europe's low latency network needs

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