More Bad News Delivered by Qwest
Qwest Communications International Inc. added to the telecommunication industry’s mounting woes Tuesday when it reported a first-quarter loss of $698 million, more than 15 times the loss it posted a year earlier.
The results marked the Denver company’s eighth straight unprofitable quarter as revenue fell 13% from a year earlier, reflecting “the difficult environment that is affecting the entire telecom industry,” said Blake Bath, a Lehman Brothers analyst. In addition, the debt-laden company faces a Securities and Exchange Commission investigation into its accounting and an inquiry by seven states into its business practices.
Some analysts speculated that Qwest’s troubles could force the ouster of Chief Executive Joseph Nacchio in much the same way that WorldCom Inc. chief Bernard Ebbers was pressured to resign from his post Tuesday. “Many investors have run out of patience with Nacchio,” said State Street Corp. analyst Dean Gekas.
Others said Nacchio’s future probably will depend on the outcomes of the investigations and on his ability to ease Qwest’s debt load by selling off business units. “I think it’s way premature to speculate that Mr. Nacchio is going to go the same way as Mr. Ebbers,” said Thomas Weisel Partners analyst Peter DeCaprio.
Declining demand as businesses cut spending on phone and data services squeezed Qwest revenue for the first three months of 2002 to $4.37 billion, down from $5.05 billion during the same period in 2001. That quarter saw a loss of $46 million. Excluding after-tax nonoperating items of $536 million, the first-quarter loss totaled 10 cents per share--more than double the Thomson Financial/First Call estimate of 4 cents a share.
To offset his company’s rising debt, which soared to $26.6 billion in March, Nacchio announced Tuesday that the company may sell as much as $10 billion of its assets, including its Yellow Pages business. Qwest set a May 8 deadline for bids on the directory, which could go for as much as $8 billion, said David Bank, an analyst with RBC Capital Markets.
“That’s pretty quick for a deal that size,” Bank said. “I think they’re trying to mobilize quickly to manage the leverage issue.”
Despite the announcement of the loss, Qwest closed up 7 cents to $5.03 on the New York Stock Exchange. Its shares hit a record low Monday on concern that Qwest’s venture into long-distance markets would be delayed.
Qwest, the largest local-phone company in 14 Western states, said it expects to file for long-distance approval with the Federal Communications Commission in early June. Several states are investigating Qwest for not releasing agreements with other telephone companies that had previously spoken out against the expansion.
For the quarter, Qwest reported that long-distance voice, data and Internet service revenue declined about 39%, or $573 million, compared with the same quarter a year ago. Wireless services increased about 28%, or $42 million.
Though the numbers “disappointed,” Qwest is looking to add several hundred million dollars in cash flow through expense controls, improved use of its network and a growth in the customer base, said Vik Grover, an analyst with Kaufman Bros. That, combined with a potential $10 billion from an asset sale, could boost stock prices.
“There’s a compelling argument here to own Qwest despite all of its issues,” Grover said.
*
Bloomberg News was used in compiling this report.
