What happened
Shares of Lumen Technologies (LUMN 5.29%), a cloud connectivity and security solutions company, were plunging Wednesday after it reported its fourth-quarter results. The company actually beat Wall Street's consensus estimates for the quarter, but investors focused their attention on management's disappointing guidance.
The tech stock had tumbled by 20.7% as of 1:49 p.m. ET.
So what
Lumen's non-GAAP earnings per share were down 15% from the year-ago quarter to $0.43, but that easily outpaced analysts' average estimate of $0.19 for the quarter.
The company's revenue also declined, falling 22% from the year-ago quarter to $3.8 billion. But that was still better than Wall Street's consensus estimate of 3.77 billion.
NYSE: LUMN
Key Data Points
Investors appeared to focus much of their attention on Lumen's 2023 guidance rather than on the latest quarterly results, and on that front, they were disappointed.
Lumen's management said that earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2023 will be in the $4.6 billion to $4.8 billion range -- and that whole range falls below Wall Street's consensus estimate of $4.95 billion.
Additionally, Lumen forecast that its 2023 free cash flow will be in the range between breakeven and $200 million, down significantly from its free cash flow of $2.26 billion in 2022 and well below analysts' average estimate of $285.9 million.
Lumen Chief Financial Officer Chris Stansbury said on the earnings call that the company is facing some near-term headwinds, including supply chains that are "strained" and negative impacts from inflation. Stansbury said that "inflationary pressures" will sap $100 million from its 2023 EBITDA.
Additionally, the company said that its low free cash flow guidance for the year is due in part to its anticipated spending on new areas of growth. Stansbury said on the earnings call that free cash flow will be impacted by $435 million to $615 million as the company focuses on "growth and optimization investments" in 2023.
Now what
Lumen's management said on the call that they expect "revenue and EBITDA to stabilize as we exit 2024 with growth thereafter."
But investors don't appear as optimistic, and at least one analyst isn't either. Following the latest quarterly report, Citigroup downgraded Lumen from neutral to sell, and lowered its price target for the stock from $6.25 to $3.50.
Technology investors don't have much patience lately for companies that don't seem to be on the right track, so it's not all that surprising to see Lumen's stock falling Wednesday. But the intensity of the company's share price decline shows just how little confidence investors have in Lumen right now.
