BT Group Plc posted higher-than-expected second-quarter earnings and sales on Thursday, driven by consumers snapping up broadband services and multinational firms agreeing IT deals.

The results, which enabled the fixed-line provider to reiterate its full-year outlook, sent shares in the group up 4 percent as it outperformed peers in both corporate international services and domestic broadband.

The performance was again underpinned by cost cuts, enabling the group to generate core earnings in the three months through September up 3 percent and free cash flow up 16 percent on lower sales overall.

BT said cost controls meant it could continue to invest, bringing forward its roll-out date for a fibre network in Britain and increasing its spending in Latin America.

It's another quarter of progress, Chief Executive Ian Livingston told reporters. In terms of our overall expectations, probably some analysts will edge up their profit and cash flow numbers and people can feel even more confident about our numbers as a result of this quarter.

But we're not changing our overall guidance at this point, I think it's still a little bit early in the year.

BT maintained its strong growth in the broadband market, adding 166,000 new customers to its retail division. Some 88,000 customers signed up to the super-fast product BT Infinity, taking the base to over 300,000.

In the last six months BT has added more than 514,000 customers on to the copper-based DSL and LLU network, either for customers to its own retail division or for rivals which access the network on a wholesale basis. Some 307,000 joined the network via BT Retail.

In comparison, cable operator Virgin Media in the last six months has added 1,000 net broadband customers in total, although it has performed strongly with a new TV product. It has also focussed on upgrading its customers to more expensive packages and speeds.


In the corporate Global Services division, the other high- performing BT unit, core earnings in the three months to September were up 15 percent.

The reiteration of full-year guidance has been well received, underpinned by particular strength in broadband and at its once beleaguered Global Services division, said Richard Hunter, head of equities at brokerage Hargreaves Lansdown.

It also has a clear eye on future strategy with ongoing investment in fibre and, further afield, in the likes of Latin America and the Asia Pacific.

BT, which competes with Virgin Media and TalkTalk and sells wholesale to rivals, has been steadily recovering after it issued profit warnings in 2008 and 2009 over the poor running of its Global Services division.

The country's biggest fixed-line telecoms supplier has since slashed costs to grow profits, and shares have risen over 100 percent since it started to show signs of recovery in April 2009.

Global Services has obviously outperformed all the other UK enterprise businesses including Logica and Cable & Wireless Worldwide, Will Draper at Espirito Santo said. The strength at the group is all in Global Services.

BT shares were up 4 percent at 195 pence at 1019 GMT in a nearly flat market.

The only slight blip in the results was linked to the group's pensions, which had a deficit calculated on an IAS 19 basis of 2.5 billion pounds net of tax compared with a deficit of 1.4 billion at the end of March.

That has grown due to recent stock market volatility but analysts said it was expected.

Overall, BT posted second quarter revenue down 2 percent to 4.89 billion pounds, compared with an analyst forecast of 4.78 billion pounds, and core earnings up 3 percent to 1.5 billion pounds, ahead of a forecast of 1.45 billion pounds, according to ThomsonReuters I/B/E/S.

When excluding transit revenues which pass through the business and do not affect profits, revenues were up 0.4 percent in the quarter, meaning it is in line for its full-year target of revenues to be between flat or down 2 percent on that basis.

(Editing by Hans-Juergen Peters and Helen Massy-Beresford)