Qwest Investors Like What They Hear

Investors are warming to the telecom company's attempts to tighten its expenses.
Author:
Publish date:

Updated from 1:25 p.m. EST

Shares of

Qwest

(Q)

surged Tuesday after the telecom firm reported

better-than-expected

fourth-quarter profit and outlined its cost-cutting plans.

Investors responded positively to Qwest's announcement that it had cut 1,700 jobs during the quarter, pushing the company's shares up to a daily high of $3.64 in the late morning. Shares closed the trading session up 2.4% to $3.45.

Other telecom stocks, however, retreated with the broader market Tuesday with

AT&T

(T) - Get Report

,

Sprint Nextel

(S) - Get Report

and

Verizon

(VZ) - Get Report

slipping 5.1%, 11% and 4.4% respectively.

The Denver phone and

data services

provider also explained that it will not make any cash contributions to its pension plan during 2009, although was unwilling to give revenue guidance for the coming quarters, citing lack of visibility into customer demand.

Qwest said it had a third-quarter profit of $185 million, or 11 cents a share, down 49% from $366 million and 20 cents a year ago, but just above analysts' estimate of 10 cents.

The company partly attributed the year-over-year decline to a fourth-quarter severance charge of $19 million and said that its earnings were impacted by higher pre-tax income compared to the year-ago quarter. The firm's income before taxes increased 17 % year-over-year, it said.

Qwest also reported fourth-quarter revenue of $3.3 billion, down 3% from a year earlier but in line with analysts' estimate of $3.31 billion.

"We were happy with our results -- we have been focused on profitable growth," Ed Mueller, the Qwest CEO, told

TheStreet.com

. "We're happy with our execution."

The CEO pointed in particular to margin growth in the firm's three core businesses. Qwest's Business Markets division, for example, saw a margin of 37.5%, up 150 basis points on the same period last year.

The firm's Mass Markets business, which saw its revenues decline 7% year over year, nonetheless reported a margin of 53.5%, up from 46.9% in the same period last year. Qwest's Wholesale Markets suffered a 4% decline in revenue, but reported a margin of 61.7%, up 120 basis points on the prior year's fourth quarter.

Mueller also highlighted his firm's ability to deliver a strong margin in its Mass Markets business despite suffering access line losses of 10.5%.

"That speaks really well to the execution," he said, alluding to the firm's recent restructuring efforts.

Last year, Qwest supplanted Sprint Nextel as its wireless-services vendor and switched to Verizon Wireless, the joint venture between

Vodafone

(VOD) - Get Report

and Verizon.

During the fourth quarter, Qwest migrated 180,000 of its customers over to the Verizon Wireless platform, and Mueller said that more than a third of its total Mobile Virtual Network Operator (MVNO) customers were on the new platform by the end of the quarter.

Qwest's Mass Markets business also reported net broadband gains of 54,000 in the fourth quarter, driven largely by the firm's growing fiber to the node (FTTN) network. FTTN, which uses optical fiber to replace the copper cabling traditionally used for telecommunications, is key to the delivery of broadband services such as high-speed Internet and features prominently in Qwest's strategy for 2009.

Mueller promised that Qwest will be building six new Fiber Rings outside of its current geographic coverage areas this year. "It's a little bit of offense and defense," he said, in response to an analyst's question during a conference call early Tuesday.

The CEO is also cautiously optimistic about new President Barack Obama's stimulus package, which aims to boost U.S. broadband coverage.

"The devil is in the detail -- we would participate where we could make a return," he told

TheStreet.com

, but said he is keen to find out who will dole the money out and also what are the bid criteria for firms providing broadband services.

"We're optimistic, but we will be able to laser in on this as soon as it gets out of the caucuses," he added.