Arcadie blog

CenturyLink outlook disappoints, shares fall

NEW YORK (Reuters) – CenturyLink Inc (CTL.N) forecast a disappointing profit target for what is expected to be its last quarter as a stand-alone company before it buys Qwest Communications International Inc (Q.N).

Shares in both companies fell about 1.5 percent after CenturyLink said it would increase spending throughout 2011 on upgrading its network even as revenue keeps falling.

The companies, which expect to close their merger on April 1, are combining in an effort to reduce expenses as consumers continue to disconnect their home phones in favor of services such as cellphones and Internet services.

But for now investors focused on its guidance for this quarter, analysts said.

"We have to hear more details as to what their spending plans are," said Wells Fargo analyst Jennifer Fritzsche, adding that CenturyLink's reputation for setting conservative earnings targets may provide some reassurance.

CenturyLink forecast first-quarter earnings per share of 66 cents to 70 cents. This was below Fritzsche's expectation for 86 cents per share and other analysts' estimates for 82 cents.

Its first-quarter revenue target of $1.68 billion to $1.7 billion was in line with the analysts' estimates of $1.69 billion, according to Thomson Reuters I/B/E/S.

The company said it expects its revenue to fall at a slower pace in 2011, compared with its 2010 decline.

But its target for a 2011 revenue decline in a range of 4 percent to 5 percent, compared with its 6.5 percent revenue decline in 2010, was against a backdrop of plans to increase spending this year.

CenturyLink said capital spending would increase 16 percent in 2011 to $1 billion as it plans to lay fiber to serve customers connecting wireless broadcast towers. The budget excludes any costs for integrating Qwest, CenturyLink said.

CenturyLink posted a fourth-quarter profit of $232.3 million, or 76 cents per share, down from $286.7 million, or 95 cents per share in the year-ago quarter.

Its revenue fell to $1.72 billion from $1.84 billion in the year-ago quarter but just topped the average analyst expectation for $1.71 billion, according to Thomson Reuters I/B/E/S.

Earlier on Tuesday, Qwest said it swung to a quarterly loss of $161 million, or 9 cents per share, as it shouldered hefty charges ahead of the merger. This compared with a year-earlier profit of $108 million, or 6 cents per share. Qwest's revenue fell 3.2 percent.

Qwest said it expects to gain regulatory approval for the CenturyLink deal from four remaining U.S. states and the Federal Communications Commission this quarter.

CenturyLink also said on Tuesday that it entered a wireless resale agreement with the biggest U.S. mobile service, Verizon Wireless, which is already Qwest's wireless partner.

Verizon Wireless is a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).

CenturyLink shares fell 1.5 percent, or 68 cents, to $44.46 in late morning trade and Qwest shares were down 1.48 percent, or 11 cents, at $7.31, both on the New York Stock Exchange.

(Reporting by Sinead Carew; editing by Gerald E. McCormick, Maureen Bavdek and Gunna Dickson)