Qwest Finishes Strong on Announcement of Job Cuts

Shares of telecommunications giant Qwest(Q) rose 6%, following the Thursday announcement the company could cut as many as 4,000 jobs by year-end as a result of its recent acquisition of US West.

Qwest Chairman and CEO Joseph Nacchio said between 2,000 and 4,000 jobs could be cut, representing about 3% to 6% of Qwest's total workforce. Most of the positions eliminated will be those duplicated by the US West merger in the finance, legal, and communications departments. Nacchio said the company planned to add jobs in its customer service, sales, engineering and operations divisions.

Investors reacted well to the news, sending Qwest up 2 13/16 to finish at 49 3/8.

Spokesman Tyler Gronbach said the job cuts are part of Qwest's plan to reach a revenue-to-employee ratio of $350,000 per person by the end of next year. Before the merger, US West's revenue-to-employee ratio was $225,000 per person; while Qwest's was $490,000 per employee.

News of the proposed job cuts comes about a month after the Denver-based communications company completed its merger with US West, more than doubling its size and picking up 25 million new phone customers. Qwest now serves 29 million customers overall.

Richard Klugman, an industry analyst at Donaldson Lufkin and Jenrette, said initial cuts had been estimated at 1,000, but he's not surprised the number has since grown.

"My guess is there will be substantial job reductions at US West, simply because they were overstaffed," said Klugman, calling the cuts "good news" for the company.

Klugman rates the stock his top pick among telecommunications companies, with a 12-month target price of $75. DLJ helped underwrite Qwest's acquisition of US West, which was completed on June 30.

"Among broadband carriers, Qwest is the furthest along in building high-capacity fiber networks, putting out new state-of-the-art services. And it has the most potential for positive news," said Klugman. "I think the acquisition will be very successful because the new management will reposition the company to be more focused on faster growth and less bureaucratic."

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