Qwest’s third-quarter financial performance beat analysts’ estimates as declines in revenue and land lines slowed and broadband growth returned.
But factoring in one-time charges, the Denver company posted a net loss for the first time in nearly five years. The bulk of those charges, ironically, was tied to the recent surge in the company’s stock price. Qwest, which announced a $22 billion merger with CenturyLink in April, is redeeming more than $1 billion in debt issued in 2005 that includes a premium if its stock trades above $4.71 per share.
Qwest shares have gained more than 30 percent over the past six months, rising 8 cents Wednesday to close at $6.75, a three-year high.
The company recorded a charge of $229 million in the third quarter related to the debt redemption, to be completed by the end of the year.
Qwest officials note that the benefits of its stock- price appreciation far outweigh the debt premium it’s required to pay. The company expects to take another charge for this quarter.
“If you look at the value created with the rise in the stock price, the premium that we’ve had to pay on this debt is like sub-one-tenth of 1 percent of the increase in the value of the company,” said Qwest chief financial officer Joe Euteneuer.
Including the special charge and $71 million in other one-time fees, Qwest reported Wednesday a net loss of $90 million, 5 cents a share, on revenue of $2.9 billion for the quarter.
Qwest had sales of $3.1 billion and net income of $136 million, 8 cents a share, during the third quarter of 2009, which included one-time charges of $27 million.
Qwest last posted a quarterly net loss in the fourth quarter of 2005, just before former chief executive Dick Notebaert led the company through a string of profitable quarters spurred by cost cuts and broadband growth.
The formula helped the company stay profitable for years in the face of ongoing land-line losses.
Excluding one-time charges, Qwest posted income of 11 cents a share in the third quarter. Wall Street analysts polled by Thomson Reuters expected earnings of 10 cents a share.
Operating expenses dropped 5 percent to $2.4 billion as Qwest trimmed marketing and cut nearly 700 jobs during the quarter. The company now employs 28,535.
Total access lines dropped 10 percent compared with a year ago to 9.1 million. The company suffered land-line declines of 11 percent during each of the first two quarters of the year.
After broadband growth slowed in the second quarter, the company rebounded by posting 40,000 net additions to its high-speed Internet service in the third quarter. Qwest ended the quarter with nearly $13 billion in debt and $2 billion in cash and equivalents.
Separately Wednesday, CenturyLink reported a third-quarter profit of 83 cents a share on revenue of $1.75 billion. Analysts expected income of 81 cents a share.
The Qwest-CenturyLink merger is expected to close in the first half of next year.
Andy Vuong: 303-954-1209, avuong@denverpost.com or
