Qwest Loss Narrows Amid Cost-Cutting

Qwest Communications International Inc. (Q) on Tuesday said second-quarter losses narrowed sharply, citing cost cutting.

Analysts said the results were slightly better than expected, as Qwest maintained its revenues even as customers continued to disconnect their landline telephones in favor of service from wireless and cable companies.

Qwest, the fourth-largest U.S. local telephone company, said its loss narrowed 79 percent to $164 million, or 9 cents per share, from $776 million, or 43 cents per share, a year earlier. Revenue rose 0.8 percent to $3.47 billion.

Excluding costs for reducing debt, Qwest said it had a loss of 7 cents per share. Analysts on average had expected Qwest to post a loss before one-time items of 9 cents per share, according to Reuters Research.

Sanford Bernstein analyst Jeff Halpern said in a note the results "reaffirm our belief that the company can execute against internal cost-cutting opportunities while stabilizing its top line."

Qwest, which lost a bidding war earlier this year with Verizon Communications Inc. (VZ) for MCI Inc. (MCIP), said it lowered operating expenses in several categories, including a 28 percent cut in capital spending and a 30 percent cut in general overhead.

Qwest has struggled for the past few years to manage its $17 billion debt and its money-losing long-haul voice and data business. Unlike the other three "Baby Bells," Qwest does not have a growing wireless unit or a cash-generating directory business, and does not pay its shareholders a dividend.

Analysts had said an MCI deal was Qwest's best hope for reworking its business. Qwest withdrew its final $9.9 billion offer only after being rejected by MCI four times, saying the process had been skewed in Verizon's favor.

Qwest Chairman and Chief Executive Richard Notebaert told analysts in a conference call that the company was open to making other acquisitions that would improve its finances. But he said any such deal would need to produce results quickly, and come at a reasonable price.

"We're not in any hurry, and we're not going to chase something just to make an acquisition," Notebaert said.

Qwest said it added 68,000 high-speed Internet lines and 41,000 long-distance lines during the first quarter, but lost 172,000 consumer access lines. Local telephone companies have attempted to combat the long-term decline of their traditional business by selling more features to the customers who stay with them.

The company said its free cash flow for the quarter, which it defines as cash from operations minus capital spending, totaled $218 million, compared with a $202 million outflow of cash in the same period a year earlier. Qwest reiterated it expects to boost free cash flow this year before one-time payments.

Qwest's shares were down a penny at $3.88 on the New York Stock Exchange (search). Its shares were pressured earlier this year by its MCI bid, and while they have recovered somewhat, still trail the Standard & Poor's 500 Index by about 15 percent for the year.