We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Lumen Technologies’s recent history shows its demand has stayed suppressed as its revenue has declined by 13.4% annually over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, Large Enterprise. Over the last two years, Lumen Technologies’s Large Enterprise revenue (services provided to businesses) averaged 6% year-on-year declines. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, Lumen Technologies’s revenue fell by 5.3% year on year to $3.33 billion but beat Wall Street’s estimates by 4.2%.

Looking ahead, sell-side analysts expect revenue to decline by 5.7% over the next 12 months. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Lumen Technologies has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.6%, lousy for a consumer discretionary business.

Lumen Technologies burned through $227 million of cash in Q4, equivalent to a negative 6.8% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Lumen Technologies will flip from cash-producing to cash-burning. Their consensus estimates imply its free cash flow margin of 10.2% for the last 12 months will decrease to negative 2.6%.

Key Takeaways from Lumen Technologies’s Q4 Results

We were impressed by how significantly Lumen Technologies blew past analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. While its full-year EBITDA guidance missed, full-year free cash flow guidance was very strong. Free cash flow generation and growth is an important aspect of the company's future success, and the market seems to be rewarding this free cash flow guidance. The stock traded up 9.1% to $5.48 immediately following the results.

Is Lumen Technologies an attractive investment opportunity at the current price? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free .