U.S. News

Qwest Swings to Profit as Winter Storms Weaken Margins


Telecom and Internet data service provider Qwest Communications International said Thursday it swung to a fourth-quarter profit, helped by an increase in the number of subscribers to its 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. Qwest is the primary telephone service provider in 14 mostly Western states.

Dick Notebaert, chairman and chief executive officer, told analysts during a conference call that the company also sustained additional compensation-related and facilities costs as employees worked around-the-clock to maintain service 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 a share, compared with a net loss of $528 million, or 28 cents a share, for the same quarter in 2005.

The latest quarter's profit included a $61 million gain on a real estate sale, and the year-ago quarter's loss reflected a charge of $430 million related to extinguished debt.

Revenue for the quarter was $3.49 billion, inching 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. In addition, Qwest said many customers are subscribing to more than one service, which helped boost the average revenue per user by 6%.

Analysts expected the company to earn, on average, 8 cents a 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, noting that access lines declined 6.4% while DSL line additions increased.

"While 4Q financials were light, we continue to expect strong FCF (free cash flow) growth in '07 and believe the valuation remains attractive," Hodulik wrpte.

For the full year, net income was $593 million, or 30 cents a share, versus a loss of $779 million, or 42 cents a 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% reduction from the previous year.