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CenturyLink's Q3 net income falls as expenses rise

Thu, 11/03/2011 - 2:55pm
The Associated Press

Phone company CenturyLink reported lower third-quarter net income Wednesday as operating expenses related to its April acquisition of larger phone company Qwest overshadowed increased revenue.

In the July-September quarter, CenturyLink earned $140 million, or 23 cents per share. This is 40 percent lower than the $232 million, or 76 cents per share, it earned a year earlier.

Excluding one-time items, the company earned 34 cents per share, matching estimates of analysts polled by FactSet.

Revenue rose to $4.6 billion from $1.75 billion, also in line with what analysts expected. Of this, $2.7 billion came from Qwest, and $223 million came from data-center operator Savvis, which CenturyLink bought for $2.5 billion in July.

The company, which is based in Monroe, La., reported a net gain of more than 57,000 broadband subscribers in the quarter to end with 5.5 million. Had CenturyLink owned Qwest a year ago, it would have had 5.3 million broadband customers at that time.

During a conference call with analysts to discuss the company's results, Karen Puckett, CenturyLink's chief operating officer, answered a question about what the company is doing to get more people to sign up for its phone and broadband Internet services.

CenturyLink's local general managers, Puckett said, "have clearly a line of sight that you can't have from a corporate headquarters, and so they know what are the right grassroots marketing programs to implement in their markets, be it military, college and school. They also work back with the corporate marketing group to make sure that we've got the right placement in terms of media.

"In terms of our direct mail, just increasing that direct mail and marketing to more of the non-customers, as well as the Tier 2 and Tier 3 markets, we think we increased our promotional call volume significantly as a result of that," she continued. "Double-play data and voice play has worked well for us; customers like the price lock for five years. Gives them some assurance in terms of their budgets, and gets them in a bundle. … From a channel standpoint, the call center, there's been a lot of focus on sales execution and our model in terms of how we sell from a top-down approach, working through the needs of the customer."

With its $12.2 billion purchase of Qwest, CenturyLink became the country's third-largest phone company by number of lines. It currently has 14.8 million access lines, down from 15.9 million that the two companies had a year earlier.

After excluding special items, operating expenses rose more than three times to $3.9 billion, from $1.2 billion a year earlier. The increase was largely the result of operating the new businesses – $2.5 billion for Qwest and $222 million for Savvis. The company also cited "significant costs" related to storms and other natural disasters.

Looking at the current quarter, CenturyLink expects adjusted net income of 58 to 62 cents per share on revenue of $4.6 to $4.65 billion.

Analysts expect adjusted earnings of 34 cents per share on $4.6 billion in revenue.

CenturyLink's stock was unchanged in extended trading after the release of results, after finishing regular trading up a penny at $34.55.

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