Beyond Positive Earnings, Qwest Merger Lives On (Q, CTL, T, VZ, S)

Last April Qwest Communications International Inc. (NYSE: Q) agreed to a merger with CenturyLink, Inc. (NYSE: CTL), then known as CenturyTel, for $10.6 billion in CenturyLink stock and assumption of $11.8 billion in Qwest’s outstanding debt. Shareholders of both companies have since approved the deal, and the merger has passed US Department of Justice scrutiny and review by 12 regulatory commissions. The merger still needs Federal Communications Commission Approval and okays from 10 other states.

Like competitors AT&T (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), both Qwest and CenturyLink lost landline subscribers during the quarter. Qwest and CenturyLink need to make up the subscriber losses by adding broadband subscribers, high-speed internet customers, and wireless subscribers where possible. Qwest reported a 37.4% increase in wireless subscribers, bringing the company’s total wireless customer base up to just over 1 million. Sprint Nextel Corp. (NYSE: S) is the third-largest US wireless carrier with about 48 million subscribers, trailing far behind leaders AT&T and Verizon Wireless each of which has around 93 million subscribers. Qwest’s million seems awfully tiny compared with those numbers.

CenturyTel reported that it’s landline subscriber total fell by -7.8% in the third quarter, from about 7.2 million to 6.63 million. The company did add 29,000 high-speed internet customers.

Qwest posted a diluted EPS loss of -$0.05. Excluding $300 million in charges, the company posted EPS of $0.11, a penny better than estimates. Revenue totaled $2.935 billion, above estimates of $2.9 billion. CenturyLink posted EPS of $0.83, beating estimates of $0.81. Revenue totaled $1.75 billion, slightly better than estimates of $1.74 billion.

CenturyLink raised the lower end of its full-year 2010 EPS guidance from $3.30 to $3.36, but kept the top of the range steady at $3.40. The company had previously said that it expected revenues to decline in 2010 by 6.5%-7.5% compared with 2009. The company trimmed the estimate to 6.5%-7.0%. Analysts were expecting full-year EPS of $3.41.

Qwest says in now expects “to report a low-single digit annual rate of revenue decline in the fourth quarter,” an improvement from the low- to mid-single digit decline previously forecast. The company also forecast EBITDA of $4.4 billion for the full year, at the high end of its previous range of $4.3-$4.4 billion.

Shares of both Qwest and CenturyLink are up less than 1% following the earnings reports.  The important thing to note is that Qwest did manage a new 52-week high of $6.79 this morning and that appears to be a high not seen since the end of 2007.  The companies expect to complete the merger in the first six months of 2011.

Paul Ausick