Qwest Posts Loss, Preps Asset Sales
The company announced a net loss of $698 million, or 42 cents a share for the quarter -- about 15 times more than the $46 million, or 3 cents a share, the company lost during the first quarter of 2001.
The loss includes $536 million in write-offs related to the company’s investment in KPNQwest NV (Nasdaq/Amsterdam: KQIP). Excluding these charges, Qwest reported a loss of 10 cents a share for the first quarter, down from a profit of 13 cents a share for the year-ago quarter. The company reported that it expects further KPNQwest write-downs in the second quarter. According to Thomson Financial/First Call, analysts expected Qwest to post a loss of 4 cents a share.
And while Qwest’s losses mounted, its revenues fell. The company reported that its revenues dropped 13.5 percent to $4.37 billion from $5.05 billion in the same period last year.
Despite the bleak news, Qwest’s stock was on the rise today, trading in early afternoon at $5.17 a share, up $0.21 (4.23%) from yesterday’s closing at an all-time low of $4.96 a share.
The company’s stock plummeted yesterday following revelations that it may have indulged in so-called “sweetheart deals” with certain CLECs in Minnesota in return for dropping their opposition to the company’s initiatives, especially long-distance entry. The company is already under investigation by the Securities and Exchange Commission (SEC) (see Qwest Revises, Retraces, Replies).
On a conference call this morning, Qwest CEO Joseph Nacchio insisted that the complaints filed by the Minnesota Department of Commerce were revealed in the company’s annual report, and that Qwest has asked the Federal Communications Commission (FCC) to determine whether or not the company has violated the Telecom act (see FCC Investigates Qwest). He also claimed that yesterday’s reports were a result of AT&T Corp. (NYSE: T) “pulling out all the stops.” But, he continued, “[AT&T’s] 18 years of systematic overcharging is about to end.”
Nacchio insisted that the Minnesota case should not affect Qwest’s long-distance re-entry. The company reported that it is seeking government approval in June to offer long-distance telephone service in its territory, which stretches across 14 Western states. “We’re at the end of the process,” he said.
The rise in Qwest’s share-price today could reflect the revelation on this morning’s call that the company is considering selling more than $10 billion in assets, including its Yellow Pages business. Nacchio said Qwest had already received several unsolicited bids, but the company has decided to organize a regulated bidding round. The first bids are expected in by May 8.
“That’s a pretty rapid pace to get a deal like that done,” says RBC Capital Markets analyst David Bank, speculating that Qwest could get as much as $7 billion for the business.
Nacchio also revealed that Qwest is considering the sale of wireless properties, access lines, and a property in Nebraska. “We continue to peel the onion,” he said [ed. note: through his tears?].
Nacchio said that the company is not feeling pressured to sell off its assets to any bidder at any price. “We have lots of choices."
The asset sales are a part of Qwest’s restructuring plan for the entire business in an attempt to cut costs and reduce its debt-load of $26 billion. The cuts include an additional 2,000 layoffs, announced earlier this month (see Qwest to Cut 2,000 Jobs). In addition, Qwest’s capital spending for the quarter of $1.2 billion was less than half of what it spent last year (see Capex Cuts: How Low Can They Go?). The company claimed that the cuts in capex wouldn’t affect the quality of its services.
Qwest also seems to finally have shaken most of the burden of KPNQwest. As of March 31, Qwest had a remaining commitment to purchase approximately $41 million worth of network capacity from KPNQwest through the end of the year. Nacchio insisted on the call that Qwest has no further obligation to fund KPNQwest after buying the obligatory capacity.
Other parts of today’s announcement that could be nudging Qwest’s stock price up a little include the company’s claim that it is stabilizing pricing, as well as its expectation to be cash-flow positive by the end of the current quarter. On the call, Nacchio said that it looks like the industry is ready to turn, and that Qwest is positioned to follow. “The pig has gone through the snake,” [eww!] he said, “and now we’re growing again.”
Observers, however, aren’t quite so sure. "I, as well as a lot of other investors, are a little cautious," RBC's Bank says. "We want to see a bit more proof before we say the industry is turning around."
— Eugénie Larson, Reporter, Light Reading