Qwest Communications International Inc. said Wednesday its first-quarter
profit surged 54 percent as the primary phone service provider in 14 mostly Western
states boosted sales and reined in costs.
Net income rose to $88 million, or 5 cents per share, for the three months ended
March 31 from $57 million, or 3 cents per share, a year ago.
It was its first profit since mid-2000 achieved without any gains from asset
sales. The profit a year ago included a gain of $257 million, or 14 cents per
share, from selling its wireless assets.
“We definitely believe it’s sustainable, and we would expect that to improve,” CEO
Richard Notebaert said.
Revenue edged higher to $3.48 billion from $3.45 billion a year earlier, driven by
sales of high-speed Internet, advanced data products and long distance service.
Analysts polled by Thomson Financial expected earnings of a penny per share on
sales of $3.49 billion, but some were disappointed that part of the benefit came
from lower depreciation expense and interest.
“The company’s results were better than we expected but not as strong as first
meets the eye,” Standard & Poor’s equity analyst Todd Rosenbluth said. “There’s a
lot more work for the company to do to grow its profitability. It’s a step in the
right direction.” He said Qwest appeared overvalued considering its wireless
business isn’t making a significant profit, unlike its peers. Qwest resells
wireless service from Sprint Nextel Corp.
Operating expenses declined modestly to $3.12 billion from $3.25 billion in the
prior-year period. Head count has fallen to 38,737 employees, down 4.6 percent from
a year ago mostly from attrition, but revenue per employee has grown 5.7 percent
since then, Notebaert said.
Notebaert said about one-third of the Denver-based company’s roughly $1.6 billion
in planned capital spending for the year would be focused on upgrading speeds for
broadband Internet access and offering higher-speed Internet access to 80 percent
of customers, up from 78 percent now.
About half of qualified households can get broadband speeds of at least 3
megabits, and speeds of 7 Mbps are available. Qwest hopes to offer at least 3 Mbps
to all qualified households.
Qwest added a record 198,000 high-speed Internet lines in the quarter, including
18,000 from previous quarters that hadn’t been counted, for almost 1.7 million
total subscribers. That was up 50 percent from the first quarter 2005.
Customers seeking bundles of local, long-distance, DSL, DirecTV and wireless
service from Qwest are growing, contributing to a 6 percent increase in average
revenue per customer to $48.55.
Its shares fell 14 cents, or 2 percent, to $6.85 in midday trading on the New York
Stock Exchange, near the higher end of their 52-week range of $3.33 to $7.48.
Qwest’s peers have been consolidating, with AT&T Inc. announcing a deal to buy
BellSouth Corp. and Verizon Communications Inc.
completing its purchase of MCI Inc.
In Qwest’s backyard, Broomfield-based Level 3 Communications Inc. this week agreed
to acquire privately held TelCove Inc., after announcing purchases of Progress
Telecom LLC and ICG Communications earlier this year.
“We’re not done. Consolidation in the industry is natural because so many more
people competing,” Notebaert said, noting that his company has to compete with
cable, Internet and wireless providers. He wouldn’t say where he thought Qwest
would end up.
