Qwest's Net Declines but Beats Estimates

Qwest (Q Quote - Cramer on Q - Stock Picks) topped Wall Street's estimates Wednesday even as second-quarter results declined from a year ago, but shares traded lower following the company's disappointing outlook for the second half of 2008.

The Denver phone and data services provider said it had a first-quarter profit of $188 million, or 11 cents a share, falling from $246 million, or 13 cents a share, in the year-ago period. The year-over-year decline was largely the result of the reversal of the valuation allowance against deferred tax assets in 2007 leading to a higher income tax expense.

Revenue slipped 2% to $3.4 billion from a year earlier, which Qwest said reflects an 8.2% decline in total access lines due to increased competition, wireless substitution and deteriorating economic trends. The company said that the revenue impact from access line losses was partially offset by an increase in the average revenue per subscriber.

Analysts were looking for earnings of 10 cents a share on revenue of $3.39 billion, according to Thomson Reuters.

Looking ahead, Qwest expects total revenue to decline as much as 2.5% for the full year as the company's mass markets business will continue to be pressured. On average, analysts expect full-year revenue to decline 1.7% in 2008 to $13.54 billion, according to Thomson Reuters.

As it replaces Sprint Nextel (S Quote - Cramer on S - Stock Picks) as its wireless services vendor and migrates to Verizon Wireless, the joint venture between Vodafone (VOD Quote - Cramer on VOD - Stock Picks) and Verizon (VZ Quote - Cramer on VZ - Stock Picks), Qwest said wireless revenue is expected to begin to decline at a rapid pace in the second half. "Full year wireless revenue could be down 20%," the company said in a statement.

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