Qwest's cost cuts boost outlook, shares rise

While the telephone operator's quarterly revenue fell 9.6 percent, slightly steeper than analysts had expected, investors cheered Qwest's ability to rein in costs.

"They're shrinking their way to greatness here," said Stifel Nicolaus analyst Chris King. "It continues to be a cost-cutting story."

Like bigger phone companies AT&T Inc and Verizon Communications Inc , Qwest has been losing home phone customers to cable rivals and to wireless, as some consumers forsake landlines to depend entirely on cellphones.

Qwest reported a third-quarter net profit of $136 million, or 8 cents per share, compared with $145 million, or 8 cents per share, a year earlier.

Excluding unusual items, earnings per share would have been 9 cents compared with the average analyst estimate of 7 cents, according to Thomson Reuters I/B/E/S.

In the quarter, Qwest's cost of sales fell to $932 million from $1.23 billion a year ago.

Revenue fell to $3.05 billion, compared to the average Street estimate of $3.07 billion, according to Thomson Reuters I/B/E/S. The company said "wireless substitution, increased unemployment, low business formation and soft housing trends" in its 14-state operating region cut into revenue.

However, Qwest forecast full-year adjusted earnings before interest, tax, depreciation and amortization to be at the upper end of its previous target of $4.25 billion to $4.4 billion.

Qwest also cut its capital spending target for the year to $1.6 billion or lower, from its previous budget of $1.7 billion or lower, and raised its estimate for full-year adjusted free cash flow to a range of $1.6 billion to $1.7 billion, from the previous target of $1.5 billion to $1.6 billion.

"Qwest's numbers were generally in line and slightly better on the outlook," said Piper Jaffray analyst Christopher Larsen. "The name of the game for Qwest this quarter and for the rest of the year is strong cost cutting."

Total access lines fell about 11 percent in the quarter, with the biggest decline coming in its consumer business, Qwest said.

"We are optimistic about our prospects as the economy begins to improve in the quarters ahead," Qwest Chief Executive Edward Mueller said in the earnings statement.

Qwest shares rose 3.4 percent, or 12 cents, in premarket trade to $3.57.

(Reporting by Sinead Carew; Editing by Lisa Von Ahn and Derek Caney)