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Qwest (Q)
Qwest Sees Profit Increase, but Revenue Fall
Qwest Communications International Inc. (Q: Charts, News, Offers) announced a 37% increase in first quarter profits. Although Qwest was able to post a net income of $206 million, it also reported that its revenue declined 4% for the quarter. The Colorado-based communications company expects weaker sales in future months. How was Qwest able to post such a large increase in profit with its revenues declining? What is causing the decrease in revenues?
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Qwest managed to improve its profit margin by making extensive cost cuts. The communications company was able to counter balance the falling revenue with its cost saving initiatives, which included substantial workforce reductions. Qwest cut its costs so effectively that it actually led to an increased first quarter profit. However, cost cutting was not the only reason for its improved profit margin. Qwest's Business Markets segment also helped to boost profits.
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The falling revenue is largely in part to declining phone subscribers. The recent economic climate has really made things difficult for Qwest. Qwest Communications does not have its own wireless offering. Therefore, it relies heavily on its lan line phone and internet/ data services. The demand for lan lines is falling just as quickly as the housing market. The reduction in home sales means fewer opportunities for Qwest to obtain new customers. Unfortunately, the falling phone subscriber problem is only compounded further by the recent spike in housing foreclosures. Qwest is also seeing customers switching over to wireless or cable offerings in effort to save money. However, the Colorado-based communications company seems optimistic about some of its other service offerings.
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Qwest hopes that its data and internet services will be able to pick up the slack for its access line phone offering. Its number of broadband subscribers rose 7% while its video subscriptions jumped up 20%. Although the total broadband, video, and phone subscribers fell 5.5%, the broadband and video offerings experienced significant growth. In addition, the average revenue per user increased 5.5%. Qwest seems to believe that it can increase profit by expanding and developing its data and internet offerings.
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The Colorado-based company is working hard to turnaround its declining revenues. It is hoping that the internet and data services' positive momentum will propel sales upward in the second quarter. In addition, Qwest has arranged a joint venture with Verizon (VZ: Charts, News, Offers) to provide its customers stand alone wireless coverage, which was previously done by Sprint (S: Charts, News, Offers). However, Qwest will still have to address the issue of its falling access line phone subscribers. Only time will tell if Qwest can download success with its data and internet services.
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