CenturyLink's Qwest acquisition costs, Q3 outlook take toll on Q2 results

CenturyLink (NYSE: CTL) may have become the third largest ILEC when it completed its purchase of the former Qwest Communications in April, but that move is marked by growing pains as it reported a decline in quarterly profit and a lower than expected Q3 2011 outlook.

During the second quarter, CenturyLink reported a profit of $102 million, or 17 cents per share, compared with $238 million, or 79 cents per share, in the same period in 2010.

What cut into CenturyLink's results, not surprisingly, were the integration costs stemming from its Qwest Communications purchase. The service provider reported that operation expenses increased to $3.7 billion from $1.2 billion in second quarter 2010, due to $2.6 billion of operating costs associated with Qwest.

Integration of the Qwest, Embarq and Savvis assets will continue to be a major focus for CenturyLink in the foreseeable future.

In Q2 2011, CenturyLink incurred $245 million in integration costs related to the Qwest acquisition, $25 million related to the Embarq acquisition and $18 million related to the Savvis. However, it continues to make progress with its Embarq acquisition, reporting that the fifth and final billing and customer care systems conversion for Embarq's legacy customers was completed in July.  

Here's a breakdown of the service provider's key metrics:

  • Regional Markets: Providing products and services to consumers, small-to-medium-sized businesses and regional enterprise customers, CenturyLink's Regional Markets Group (RMG) revenues declined 4.9 percent from Q2 2010 to $2.26 billion due to ongoing landline voice losses. RMG legacy service revenues declined 9.1 percent, while growth of broadband services helped drive up strategic revenues by 5.8 percent year-over-year. As of the end of the quarter, RMG reported it had 5.43 million subscribers, which it achieved through the addition of 12,200 broadband customers during the quarter. Meanwhile, it reported it had over 15 million access lines at the end of the quarter.
  • Business Markets: CenturyLink reported that the Business Markets Group (BMG) reported that operating revenues declined 4.1 percent from $961 million in Q2 2010 to $922 million this quarter, with $27 million due to lower data integration revenues. Similarly, BMG's segment income declined 2.4 percent pro forma year-over-year.
  • Wholesale Markets: As seen in previous quarters at the former Qwest and CenturyLink, Wholesale Markets Group (WMG) segment revenue declined again due to a decrease in legacy access and long distance voice revenues. During the quarter, WMG revenue declined 4.6% from $1.02 billion a year ago to $975 million.

Looking forward to Q3 2011, CenturyLink has forecast adjusted earnings of 29-34 cents per share on revenue of $4.55-$4.6 billion. This is below analyst estimates of 65 cents on revenue of $4.45 billion.

Taking into account CenturyLink's first half 2011 results and the combined CenturyLink and Savvis operations, the service provider forecast operating revenues of $15.2 to $15.4 billion for the year 2011.

For more:
- see the earnings release
- Reuters has this article

Special Report: Wireline in the second quarter 2011

Related articles:
CenturyLink, Savvis merger complete
CenturyLink to expand employee base in its hometown Monroe, La. market
CenturyLink to add Verizon Wireless service to its bundles
Glen Post, CenturyLink: Wireline's most powerful people

Suggested Articles

France and Germany are teaming up to jointly create a cloud-computing ecosystem that would challenge AWS, Microsoft and Google, according to Reuters.

Calix has teamed up with Spirent for a single lab that speeds up testing cycles while lowering powering and capex.

VMware announced on Thursday that it has struck a deal to buy network security vendor Lastline for an undisclosed sum.