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Qwest beats 4Q estimates, on track for 2001

Updated 12:01 p.m., ET

Qwest Communications International Inc. (NYSE: Q) said Wednesday it beat expectations and is on track to meet estimates for upcoming quarters, thanks to strong growth in its Internet and data business.

Shares in the broadband Internet communications company closed up $1.31 to $44.63 Tuesday, ahead of the announcement.

The good results came as no surprise -- this is the 15th consecutive quarter Qwest has met or beaten consensus estimates, and the company had said in December that its fourth quarter would meet expectations.

Though analysts worry fourth quarter results from older communications companies like AT&T (NYSE: T) and Worldcom (Nasdaq: WCOM) may be affected by the slowing long-distance business, Qwest is sheltered from by its large stake in high-growth data and Internet businesses.

Chairman and CEO Joseph P. Nacchio said Qwest is "on track to meet our expected growth rates," in a news release. However, on a conference call with analysts, Nacchio said 2001 will offer more of a challenge in meeting revenue estimates than 2002 and 2003. "Most synergies are ahead of us, but we have more wind in our sails for 2002 than 2001," Nacchio said.

Robert S. Woodruff, Qwest executive vice president and CFO said the company is still comfortable with 2001 expectations of $21.3 billion to $21.7 billion in revenue and $8.5 to $8.7 billion in earnings before interest, taxes, depreciation and amortization.

Qwest expects to grow 11.5 percent to 12.5 percent from the $4.5 billion in sales recorded in the first quarter of 2000. First Call consensus was predicting first quarter revenue of $5.1 billion, or about 13 percent year-over-year growth.

Gross margins could fall, Woodruff said.

The only question is "how macroeconomic conditions will affect the telecom carriers," Davenport & Co. analyst Drake Johnstone said in a phone interview.

Johnstone said Qwest's fourth quarter performance looked good. Even in a slowing market such as long distance, Qwest is gaining share, unlike AT&T and Worldcom, Johnstone added.

Fourth quarter earnings of $270 million -- excluding one-time charges -- represented a 43.6 percent year-over-year from the combined revenue of Qwest and the acquired U.S. West. Earnings per share increased 45.5 percent to 16 cents, or two cents more than First Call's consensus estimate.

Earnings before interest, taxes, depreciation and amortization for the fourth quarter grew 19.7 percent to $1.99 billion.

Revenue for the fourth quarter was $5.02 billion, up 9.9 percent from a year ago, and slightly below a consensus estimate of $5.03 billion. Qwest said the growth was driven by strong demand for Internet and data services, which increased by almost 40 percent.

The company said it saw strong demand for Internet access, hosting, digital subscriber line (DSL), virtual private network, frame relay, ATM and professional services. Internet and data services revenue represented 70 percent of Qwest's total revenue growth in the quarter.

Wireless services revenue grew 90 percent in the quarter to $150 million. Commercial services revenue increased more than 19 percent, while consumer and small business services grew by just five percent.

For the year, Qwest reported net income of $1 billion, up 53.6 percent over 1999, while 2000 earnings of 59 cents per share grew 51.3 percent over 1999's.

Pro forma EBITDA for 2000 increased more than 17.3 percent to $7.37 billion, despite large investments in areas such as hosting, local broadband access, Internet and data services, and service improvements, the company said.

Revenue for the full 2000 jumped 14.2 percent to $18.95 billion, thanks to Internet and data services, which grew more than 60 percent for the year. The company ended 2000 with more than 255,000 DSL customers, more than double the previous year and above the company's year-end target of 250,000.

Qwest rival Broadwing Inc. (NYSE: BRW) also reported fourth quarter results Wednesday.

For the quarter, Broadwing reported a loss of 18 cents a share, excluding special charges, compared with a loss of 50 cents a year ago. First Call was expecting a loss of 20 cents a share. Earnings before interest, taxes, depreciation and amortization rose 81 percent to $146 million.

Including all charges, Broadwing lost $1.26 a share.

Broadwing's fourth quarter revenue increased to $561 million, up 27 percent year-over-year from the combined 1999 revenue of Broadwing and the acquired IXC Communications.

During the quarter, the company recorded a nonrecurring charge of $1.08 per share for a write-down of the company's portfolio of publicly traded securities. The charge did not affect Broadwing's cash total.