Level 3 Communications Inc. (NASDAQ: LVLT) managed to give an upside surprise to earnings this morning.   Its guidance was much better than most expected.  That includes yours truly.

The data communications wholesaler made $44 million in the last quarter compared with a loss of $91 million in the same quarter in 2007  The latest quarter includes a gain of $78 million from debt cancellation.  The loss on a reported basis was -$0.03 EPS, narrower than -$0.06 EPS in the same period a year ago and below First Call estimates of -$0.08 EPS.  Revenue was down 4% to $1.05 billion, under the $1.08 billion estimates.

The company noted that the lower revenue was as a result of the current economy and some usage declines.

Level 3 expects continued weakness in the near term in 2009, but will cut cap-ex to moderate that effect.  The company is targeting an increase to its adjusted earnings in 2009.

Level 3’s loss for 2008 narrowed to $290 million from $1.11 billion in 2007, but revenue rose by less than 1% to $4.3 billion.

Shares are up 7% at $1.07 and we reached the average daily volume in about the first hour of trading.  During the second hour, there has been a marked slowdown in share volume.  An intra-day high was put in at $1.20 this morning, and the 52-week trading range is $0.57 to $4.48.

This might not be as strong as the latest report from Akamai Technologies Inc. (NASDAQ: AKAM).  But this is far better than what we expected.  The report today was strong enough that many may reach a conclusion that it can meet 2009 and 2010 funding obligations, or at least should be able to without significant trouble.

Jon C. Ogg
February 11, 2009

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