Profits rise at CenturyTel, fall at Qwest
By Steve Goldstein & Jeffry Bartash,
WASHINGTON (MarketWatch) -- CenturyTel Inc. and Qwest Communications International Inc., which plan to merge, both reported better-than-expected earnings for the first quarter Wednesday, although their respective customer bases shrank again.
+0.39, +1.15%) announced it would acquire Denver-based Qwest
+0.12, +2.29%) for $10.6 billion. The deal would make
Louisiana-based CenturyTel the No. 3 provider of local-phone
service in the
The local market has undergone rapid consolidation over the past few years, spurred by a long-term decline in the number of homes that subscribe for traditional phone service. Millions of ex-customers have switched to cable or Internet phone service or rely solely on wireless.
As a result, local carriers are bulking up to increase their customer base, boost revenue and support lavish dividend payouts to shareholders. CenturyTel, for example, has a dividend yield of 8.5%.
Although the local market's expected to continue to decline, tens of millions of customers are not ready to "cut the cord" and many still depend on local carriers for high-speed Internet service.
In the first three months of 2009, CenturyTel posted net income of $252.6 million, or 84 cents a share, up from $67.2 million, or 67 cents a share, a year earlier. Average diluted shares outstanding doubled from the year-ago first quarter, the company's results showed.
Tight cost controls and higher sales of Internet service helped profits, but the biggest gain stemmed from CenturyTel's acquisition of Embarq Corp. earlier this year.
Revenue tripled to $1.8 billion from $635.4 million in the 2009 first quarter.
Adjusted for one-time items, CenturyTel would have earned 93 cents a share. The carrier was projected to earn 86 cents a share on revenue of $1.79 billion, according to a poll of analysts by FactSet Research.
Looking ahead, CenturyTel raised its annual forecast for profit and free cash flow and said revenue would fall at a slower pace. The company now expects to earn an adjusted $$3.20 to $3.30 a share in 2010, up from its prior target of $3.10 to $3.20.
Qwest, for its part, recorded quarterly net income of $38 million, or 2 cents a share, down from $206 million, or 12 cents a share, a year earlier. Revenue fell 6.5% to $2.97 billion.
During the latest quarter, Qwest recorded a non-cash charge of $113 million related to the end of a tax break in the new health-care law that the company used to help pay for retiree medical care. Industry leaders AT&T Inc. /quotes/comstock/13*!t/quotes/nls/t (T 25.84, -0.06, -0.24%) and Verizon Communications Inc. /quotes/comstock/13*!vz/quotes/nls/vz (VZ 28.65, -0.10, -0.35%) took similar first-quarter charges.
Excluding the charge, Qwest would have earned 10 cents a share and topped Wall Street's forecast. The company was projected to earn 8 cents a share on revenue of $2.93 billion, according to FactSet.
Adjusted cash flow totaled $1.12 billion, off from $1.15 billion a year ago.
Customers still leaving
Qwest, the main local provider in 14 Western states, reported a 10.5% decline in total phone lines, including business and wholesale, to 9.66 million. AT&T and Verizon also experienced 10%-plus declines in the first three months of 2010.
CenturyTel's base of local customers fell a lesser 8.4% to 6.9 million lines, adjusted for the Embarq purchase. The company mostly serves rural areas and middle-sized markets where competition from cable is less fierce.
After the merger, CenturyTel expects to generate annual revenue of $19 billion, with service in nearly 40 states. The company has been especially aggressive over the past few years in snapping up companies to expand its footprint.
Steve Goldstein is