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Qwest posts second straight profit
The firm credits cost-cutting and growth in Internet services amid a drop in phone clients. A stock buyback or dividend may follow.
By Andy Vuong, Staff Writer
Denver Post
Wednesday, August 2, 2006

Qwest announced Tuesday it was profitable for a second consecutive quarter, sending its stock price to a level not reached in more than four years.

The Denver-based phone company said cost cuts and continued growth in its high-speed Internet business helped offset a decline in local telephone customers.

The company also said it is considering a stock buyback or a dividend to reward shareholders.  Qwest stock jumped 8 percent to close at $8.40 a share, its highest since March 2002.

"Qwest came out with a very solid quarter," said Donna Jaegers, an analyst with Janco Partners in Denver.

Qwest posted net income of $117 million, 6 cents a share, during the second quarter on relatively flat revenue of $3.47 billion.  In comparison, the company had a net loss of $164 million, 9 cents a share, in the second quarter of 2005.

Analysts polled by Thomson Financial expected the company to post earnings of 5 cents a share.  While Qwest beat earnings estimates by a penny, it fell slightly short of analyst revenue projections of $3.5 billion.

"We booked our second consecutive quarter of profitability, and we have the opportunity for continued improvement through the course of the year," Qwest chief executive Richard Notebaert said.

The company added 120,000 high-speed Internet subscribers in the quarter, taking its total to 1.8 million, up 51 percent from a year ago.

Qwest's bundled services -- a package of phone, high-speed Internet and satellite TV provided by DirecTV -- and wireless business provided through Sprint also grew during the quarter.

But its local-telephone access lines continue to decline, dropping by 5.3 percent to 14.3 million from 15.1 million in the second quarter a year ago.

Chris King, an analyst with Stifel Nicolaus, said Qwest is "a declining business without much near-term potential for revenue growth going forward."

But he had high praise for the turnaround Notebaert has led since taking the helm in June 2002.

"He's done a great a job righting the ship," King said.  "Just keeping the company out of bankruptcy was a feat in and of itself, and now to get to the position that they're in where conceivably they could be paying a dividend or buying back stock ... is certainly remarkable."

Jim Cramer, host of CNBC's "Mad Money" cable-TV show, said Tuesday that Notebaert deserves a "congressional medal of turnaround" and called Qwest the best trade in the market.

Jaeger said Qwest has done well controlling expenses.  The company cut its operating expenses by 6 percent to $3.1 billion during the quarter.

Over the past year, the company shed 3.3 percent of its workforce.  As of June 30, it employed 38,843 people, down from 40,187 a year ago.  It employs about 9,800 in Colorado.

Qwest's workforce increased in the second quarter over the first quarter after it added 540 call-center jobs as part of plans to rehire up to 3,000 workers, Notebaert said.

Under a contract Qwest negotiated with its union, the call-center wages dropped from about $20 an hour to $10 an hour, though the workers receive full health benefits and can earn commissions based on sales performance, Notebaert said.

The company is opening a call center in Utah this week that will add 600 jobs.

Qwest ended the quarter with a debt load of $15.4 billion, down $2.2 billion from a year ago.

King said Qwest's stock-price surge may have been helped by rumors that Verizon may target the company after it was unable to acquire from Vodafone its 45 percent stake in Verizon Wireless. King said a Verizon-Qwest marriage is unlikely.

Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.

$117 MILLION

Qwest's reported net income during the second quarter, compared with a net loss of $164 million in the same period of 2005

$3.47 BILLION

Qwest's revenues in the quarter, when it added 120,000 high-speed Internet customers.  It lost about 800,000 local land-line customers from a year ago.

$8.40

Qwest's stock price, up 8 percent to its highest level since March 2002

http://www.denverpost.com/business/ci_4123017