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Merger Costs Hit CenturyLink's Q2

CenturyLink Inc. (NYSE: CTL) had a rougher second quarter than expected, and is telling analysts to expect more of the same. (See CenturyLink's Q2 Disappoints.)

The cost of the Qwest acquisition is $200 million higher than anticipated, due to higher depreciation and amortization costs that pushed CenturyLink's earnings per share down to 44 cents. Without those costs the EPS would have been 64 cents -- the lower end of the anticipating range. (See Merger a Boon to CenturyLink Business?)

Total revenue of $4.41 billion was just below analysts' expectations, but CenturyLink warned that revenues for the rest of 2011 would be off by $151 million, due to a number of factors, including lower access revenues. On a pro forma basis, operating revenues were down 4.9 percent.

Operating expenses were $3.7 billion, including those higher-than-expected depreciation and amortization costs. Operating cash flow increased, due to the acquisition, but CenturyLink's operating cash flow margin fell from 52 percent to 44 percent, after absorbing Qwest's lower operating margins.

CenturyLink's earnings per share for the rest of 2011 will be affected by the Qwest acquisition costs but also by the integration of Savvis. (See CenturyLink Clouds Up With Savvis Buy.)

CenturyLink shares were down 92 cents (2.65%) to $33.74 each in Thursday morning trading.

— Carol Wilson, Chief Editor, Events, Light Reading

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