Qwest Shares Fall on Quarterly Shortcomings

Even with all of today's bad news, CEO Joseph P. Nacchio extended his employment contract with Qwest through 2005.

by Bod Woods Managing Editor OpticallyNetworked.com [November 1, 2001]

Shares of Qwest Communications International Inc. (NYSE:Q) were getting hammered as of mid-afternoon Wednesday and several brokerage houses downgraded their ratings of the telecommunications concern, as the company reported an unexpected third-quarter loss on lower-than-predicted sales.

Just before 12:00 Noon EST today, Qwest shares traded at $13.05, off $2.95 or 18.4 percent in very heavy trading. Qwest shares had sold for as little as $12.65 apiece earlier in the day—a 52-week low for the stock.

Qwest's third-quarter net loss totaled $142 million or $0.09 a share, as compared to the year-ago third-quarter loss of $248 million or $0.15 a share. After taking charges for costs associated with Qwest's buyout of U.S. West, Qwest reported a quarterly loss of $138 million or $0.08 a share, worse than the $0.03 per share profit Wall Street had expected, according to Thomson Financial/First Call.

Revenues, meantime, totaled $4.77 billion. First Call reported that analysts had expected Qwest to report revenues of $5.11 billion.

Buying behavior
Qwest took a hit on the optical-networking side of its business, as the company saw a decline in optical capacity asset sales resulted from softening wholesale demand and a shift in customer purchasing behavior away from network asset purchases to shorter-term monthly operating leases, the company said.

"Our results reflect the continuing impact of a slowing economy as well as a fundamental shift in the wholesale customer buying behavior for optical capacity asset sales,'' said Joseph P. Nacchio, Qwest chairman and chief executive officer, in a statement. "We are continuing to focus on retail revenue growth and the generation of free cash flow from operations. Our blend of assets, products, and expanding distribution channels positions us well for the economic recovery, and we continue to be the model to which the industry will eventually evolve.''

During the quarter the company expanded its domestic network by adding 5,500 miles of fiber routes, giving Qwest more than 25,500 route miles of broadband network facilities across the U.S. Coupled with the company's fiber assets in Mexico and Canada, Qwest's North American network spans more than 33,500 route miles.

On the news, at least three brokerage firms—Goldman Sachs, CSFB and Merrill Lynch—downgraded their recommendations on Qwest shares. In a research note, Goldman Sachs said it bumped Qwest two places, from its Recommend List to Market Perform.

Even with all of today's bad news, Qwest extended Nacchio's employment contract through 2005. The company also is providing additional equity incentives to 15 other senior executives to drive long-term shareowner value.

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