Qwest posts 4th-quarter profit; beats estimates
DENVER ” Telecommunications provider Qwest Communications International Inc. said Thursday it swung to a fourth-quarter profit as more customers shifted away from traditional phones in favor of high-speed services.
However, winter storms that have pounded the West took their toll on the company with weaker-than-expected margins in earnings before interest, taxes, depreciation and amortization. Denver-based Qwest is the primary telephone service provider in 14 mostly Western states.
The additional compensation-related costs were estimated between $40 million to $45 million. In addition, the company spent $10 million to $15 million on facilities.
Dick Notebaert, chairman and chief executive officer, told analysts during a conference call that the company sustained the additional expenses as employees worked around-the-clock to maintain service during the storms but lost time for new-service installations.
“There’s no nice way to say it, but if it affects your top-line and your expenses, then obviously it affects your EBITDA margin,” he said. “Global warming aside, we would not expect to have that type of impact on an ongoing basis.”
For the quarter ending Dec. 31, net income was $194 million, or 10 cents per share, compared with a net loss of $528 million, or 28 cents per share, for the same quarter in 2005.
The latest quarter’s results included a $61 million gain on a real estate sale, while the year-ago quarter’s loss reflected a charge of $430 million related to extinguished debt.
Revenue in the most recent quarter was $3.49 billion, up from $3.48 billion in the year-ago period.
The company added 165,000 high-speed Internet subscribers in the quarter, compared with 140,000 a year earlier. Notebaert said many customers are subscribing to more than one service, which helped boost the average revenue per user by 6 percent.
Analysts expected the company to earn, on average, 8 cents per share on $3.49 billion in revenue. The estimates typically exclude one-time items.
In a research note, UBS analyst John Hodulik said the operating metrics were in line with his expectations. “While 4Q financials were light, we continue to expect strong FCF (free cash flow) growth in ’07 and believe the valuation remains attractive,” he wrote.
Janco Partners analyst Donna Jaegers said the numbers were disappointing at first glance but the company did a good job of explaining the one-time impacts. She said many analysts had hoped for better fourth-quarter margins.
“I’m still one of the skeptics on the company because I don’t think there are a lot more cost-cutting opportunities,” Jaegers said.
Qwest continues to face competition for customers from Comcast Corp. as it pushes to shift more customers away from traditional service toward high-speed voice and data packages.
Qwest, which resells DirecTV satellite television service, also is looking into Internet Protocol TV, which would deliver the broadcasts via a high-speed Internet connection.
The company is increasing bandwith and installing more fiber but won’t step up services until the new technology is glitch-free, Notebaert said.
He also told analysts they remain on the lookout for potential acquisitions.
For the full year, net income was $593 million, or 30 cents per share, versus a loss of $779 million, or 42 cents per share, for 2005. Revenue was $13.92 billion, up slightly from $13.9 billion in the year-ago period.
Chief Financial Officer Oren B. Shaffer said the company ended the year with 38,000 employees, a 3 percent reduction from the previous year as it continued to cut costs.
Qwest’s stock dropped 9 cents to close at $8.16 a share Thursday on the New York Stock Exchange. In the past year, the price has ranged from $5.78 a share to $9.22 a share.
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