U.S. News

Qwest Second-Quarter Profit Rises, Misses Expectations


Qwest Communications International said Wednesday its second-quarter profit rose as the telecommunications carrier trimmed costs, but the results were slightly short of market expectations.

The company, whose shares slipped 6 percent in early electronic trading, managed to trim its debt during the quarter, but remain hampered by falling traditional phone sales and a lack of a wireless unit to compensate for it.

Larger phone companies such as Verizon and AT&T are battling for customers from cable companies like Comcast and Time Warner Cable by offering packages of phone, video and Internet services. Qwest, for its part, offers similar bundles, but only through partnerships with other companies.

Janco Group analyst Donna Jaegers applauded Qwest's cost reduction, but was concerned about its decline in phone customers.

"When you're losing your customers at that sort of pace you just have to wonder what the Qwest franchise is going to look like in five years," she said. "Comcast is obviously aggressively attacking Qwest."

Qwest, which mainly serves the western United States and is the smallest of the U.S. regional phone operators, said quarterly net income rose to $246 million, or 13 cents per share, from $117 million, or 6 cents per share, a year earlier.

A $22 million charge, related to an early retirement of debt, was included in the net income.

Revenue fell to $3.463 billion from $3.472 billion in the year-ago quarter.

Income excluding the debt retirement charge was 14 cents per share, lower than the average analyst forecast of 15 cents, according to Reuters Estimates. Revenue also fell short of the consensus forecast of $3.475 billion.

The company, which has struggled over the past few years to reduce its debt after the burst of the global tech bubble, said net debt as of June 30 totaled $13.4 billion, down $356 million compared to end-March and down $580 million from a year ago.

Year-to-date capital expenditures totaled $744 million, compared to $832 million last year.

Helped by lower debt, Qwest generated adjusted free cash flow of $679 million in the quarter, up around $84 million compared to the year-ago quarter.

Qwest's total access lines fell 7.1 percent year-on-year in the second quarter, compared to an annual 6.8 percent decline in the previous quarter.