CenturyLink (NYSE: CTL) will release its quarterly report on Wednesday, and investors are still somewhat shell-shocked by the company's big dividend cut back in February. But CenturyLink earnings appear to be starting to move back up, and the resulting gain in confidence could make even the company's reduced dividend worth a second look.

Like many telecom companies that focus on underserved customers in off-the-beaten-path areas, CenturyLink has struggled to keep up with growth in higher-margin telecom services. Yet even as the company lost favor among dividend investors, it has taken steps to try to shore up its fundamental business, seeking to capture more lucrative opportunities that have better long-term prospects. Let's take an early look at what's been happening with CenturyLink over the past quarter and what we're likely to see in its report.

Stats on CenturyLink

Analyst EPS Estimate

$0.67

Change From Year-Ago EPS

3.1%

Revenue Estimate

$4.53 billion

Change From Year-Ago Revenue

(1.9%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

How can CenturyLink earnings bounce back?
Analysts have gotten more optimistic about prospects for CenturyLink earnings in recent months, raising their June-quarter estimates by $0.01 per share and their full-year 2013 predictions by $0.08 per share. The stock, however, hasn't reflected that optimism, falling about 1% since early May.

CenturyLink came into the quarter on a reasonably positive note, with first-quarter earnings that grew almost 50% on a GAAP basis and a more modest but still reasonably strong 12% on an adjusted basis. The consumer segment continued to lose revenue as its legacy services continued their decline. But growth in the business and data-hosting segments helped the company, and increased earnings guidance for the remainder of 2013 helped boost shares.

But what investors didn't count on during the quarter was an interest rate rise that hit many high-yielding dividend stocks. As rates rose, investors were less willing to take on the risks involved with high-dividend telecom stocks, especially given their eroding core businesses. Rural telecoms Frontier Communications (NASDAQ: FTR) and Windstream (NASDAQ: WIN) followed CenturyLink in posting significant losses during May and June, although both Frontier and Windstream bounced back in July to a much greater extent than CenturyLink did. Frontier and Windstream have both struggled to push beyond their residential legacy businesses to try to find better profit-making alternatives, and neither has managed to reverse sales declines, with Frontier on track to see sales drop 5% this year and Windstream looking at a 2% revenue pullback.

Still, what CenturyLink has that its peers don't is a strong cloud-computing infrastructure and services platform, which CenturyLink's Savvis provides. With the company having announced its new Savvis Cloud Data Center late last month, CenturyLink hopes to expand on its virtual private data-center capability by allowing customers to make it easier to customize their own systems to meet their particular needs.

In the CenturyLink earnings report, watch for the company to comment on the impact of the company's new tentative four-year agreement with its union employees in the Communications Workers of America. With a similar deal expected with electrical workers, putting potential labor disruptions behind it could help CenturyLink look forward more aggressively in plotting its course for the future.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.