Qwest investors rattled over Q3 report
By Jeff Smith
Rocky Mountain News
Tuesday, October 30, 2007
Qwest's third-quarter profits soared on a one-time tax gain
today, but revenues were down 1.5 percent and shares fell by
more than 10 percent in early trading amid investor concerns
over the Denver
telco's strategy. The stock decline also appeared to be
driven by the fact that Qwest's board has delayed a decision on
a possible stockholder dividend until new CEO Edward Mueller has
completed his strategic review of the company.
"I understand the frustration. But I think a complete
holistic plan from a new CEO is the right thing to do," Mueller
told analysts in a conference call. "We are going to
produce. We are going to have a great company."
Mueller did announce plans to set aside up to $300 million next
year to expand Qwest's fiber network into neighborhoods.
That will help Qwest deliver higher Internet speeds and perhaps
video services in competition against cable TV (although Mueller
said Qwest plans to stick to reselling DirecTV).
Donna Jaegers, a telecommunications analyst with Janco Partners
in Greenwood Village, liked the initial glimpse of
"I think strategically Mueller is putting the company in a
better position, but he's disappointing the short-term bulls
that were hoping for a payout," Jaegers said. "He has
people spooked that Qwest is going to spend all of its free cash
flow and none will go to shareholders (in the form of a
She said investors also may be anxious about reports that Qwest
bid for Covad Communications, an indication Qwest could get more
aggressive in the mergers and acquisition front under Mueller.
But Jaegers said she thinks Mueller is doing the right thing for
the long-term future of the company, and said she was
comfortable with her decision Monday to upgrade Qwest from a
"sell" to a "market perform."
The third-quarter results represented the first quarter under
Mueller, who replaced the retiring Dick Notebaert in August.
Qwest reported third-quarter net income of $2.07 billion, or
$1.08 a share, compared with $194 million, or 9 cents a share,
for the same period of 2006.
The results included a one-time tax gain of $2.1 billion.
Earnings were affected negatively by a $353 million charge
related to settling shareholder litigation that stems from the
era of former CEO Joe Nacchio.
Revenues were off 1.5 percent to $3.43 billion and included
declines in Qwest's wholesale business.
Qwest, which is a local telephone provider in 14 states,
continues to lose traditional land lines, a trend exacerbated by
the housing slowdown. Total land lines were down 7.2
percent year-over-year to 13 million.
The company reported that it had 37,026 employees as of Sept.
30, a 5.5 percent decline from 39,163 a year ago.
On the positive side, Qwest's high-speed Internet business
continues to post strong growth, up 27.5 percent since last year
to 2.5 million subscribers. And the average monthly
customer bill is up 10 percent to $55 in the past year.