Qwest Reports Q2Qwest Reports Q2

Qwest reported net income of $117M, or $0.06 per share, compared with a loss of $164M, or $0.09 per share in the second quarter 2005

August 2, 2006

3 Min Read

DENVER -- Qwest Communications International Inc. (NYSE:Q - News) today reported solid second quarter results highlighted by improved earnings per share, further margin expansion and strong free cash flow. For the quarter, Qwest reported net income of $117 million, or $0.06 per fully diluted share, compared with a loss of $164 million, or ($0.09) per share in the second quarter 2005.

"We are very pleased that we've entered the second half of the year with the momentum of two profitable quarters," said Richard C. Notebaert, Qwest chairman and CEO. "Our cost structure and investments remain focused and rational while customers are embracing our higher-value, higher ARPU products that contribute to our revenue."

Financial Results

Qwest reported revenue of $3.5 billion for the second quarter, benefiting from improving sales within Qwest's diverse portfolio of growth products, including high-speed Internet, advanced data products, long distance and wireless.

"The second quarter continues to illustrate that we are delivering on goals and meeting expectations," said Oren G. Shaffer, Qwest vice chairman and CFO. "Our free cash flow is on track for the year, our margins continue to widen toward our target of the mid-30 percent range, and we have continued growth opportunity for the remainder of the year."

Qwest's operating expenses declined 6 percent to $3.1 billion for the second quarter of 2006 over the second quarter of 2005 as a result of improvement in productivity and operating efficiencies, lower facility costs, and lower depreciation.

Qwest's EBITDA margins continued to expand, reaching 31.9 percent in the second quarter, a 330 basis point improvement from the second quarter a year ago and up more than 100 basis points sequentially.

Cash Flow, Capital Spending and Interest

The company generated strong free cash flow of $595 million in the quarter by benefiting from improved operating results and lower interest payments. Qwest continues to expect free cash flow of $1.35 billion to $1.5 billion in 2006 compared with $904 million in 2005 (both before one-time payments).

Second quarter capital expenditures totaled $442 million, compared to $352 million in the second quarter of 2005, with a continued focus on the proportion spent on broadband, enabling higher speeds and footprint expansion. Capital spending in 2006 is expected to be approximately equal to our 2005 level as the company continues to focus in a disciplined fashion on investment in key growth areas and to support the highest service levels.

Interest expense totaled $298 million for the second quarter compared to $380 million in the year-ago quarter. As a result of successfully tendering for and retiring high coupon legacy debt in the fourth quarter of last year, interest expense is expected to be reduced by approximately $300 million in 2006.

Balance Sheet Update

The company ended the quarter with total debt of $15.4 billion, a decline of $2.2 billion compared with the second quarter a year ago. The company's near doubling of cash and short-term investments to $1.4 billion during the quarter, brought total debt less cash and short-term investments to less than $14 billion.

Qwest Communications International Inc. (NYSE: Q)

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