Qwest up in 3rd quarter

DENVER — Qwest Communications said Tuesday it swung to a profit in the third quarter as it added more customers for Internet and data services, lowered expenses and recorded a tax-related benefit.

Revenues were shy of Wall Street's expectations, however, and Qwest's shares fell 4.2 percent following several days of gains.

It marked the third consecutive quarter of profit for the Denver-based telecommunications company, which has shifted strategy toward selling packages of services amid competition from cable television and cell phones.

Chief Executive Dick Notebaert said Qwest Communications International Inc. hopes to finish 2006 with an annual profit for the first time since the company acquired US WEST six years ago, with the exception of years in which asset sales boosted revenue.

Shares of Qwest dropped 38 cents, or 4.2 percent, to $8.63 on the New York Stock Exchange. In the past year, the shares have ranged from $4.08 to $9.22.

Notebaert attributed the share drop to an adjustment after the price rose 3.5 percent Monday after UBS analyst John C. Hodulik upgraded the company. "It's still a good performance year-to-date," Notebaert said.

In a research note published Tuesday afternoon, J.P. Morgan analyst Jonathan Chaplin said he wasn't surprised to see the stock price decline because it climbed 10 percent in the last five days of trading.

"For the stock to go above $9, you have to believe (Qwest) can accelerate revenue growth," Chaplin wrote. "We saw some evidence of improving revenue trends this quarter, but it is still too early for this to be a major driver of the stock."

Janco Partners analyst Donna Jaegers said she believed the share price drop reflected concerns by investors over Qwest's competition from cable TV service provider Comcast Corp. and others.

For the quarter ending Sept. 30, Qwest reported net income of $194 million, or 9 cents per share, compared with a loss of $144 million, or 8 cents per share, in the third quarter of 2005.

Results for the most recent quarter included a tax-related gain of $94 million and a $43 million severance charge, while interest expenses fell 24 percent to $291 million.

Severance charges were due to the consolidation of some customer service centers as well as layoffs of technicians in some areas, Notebaert said.

Revenue dipped 1 percent to $3.49 billion from $3.50 billion in the year-ago quarter. Results just missed analysts' expectations for $3.5 billion in sales.