CenturyLink Q1 beats but forecast fails to inspire

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BANGALORE (Global Markets) - CenturyLink Inc (CTL.N) posted a better-than-expected quarterly profit as gains at high-speed Internet customers offset those disconnecting their home phones, but the rural telephone operator forecast second-quarter earnings below market.
Regional phone companies like CenturyLink, which acquired rival Qwest for $10.6 billion last month, face the challenge of finding new ways to grow as consumers disconnect home phones in favor of Web and mobile services.

The company agreed to buy Savvis Inc (SVVS.O) for $2.5 billion last month to beef up its data center business and cash in on growing demand for cloud services.

CenturyLink forecast second-quarter earnings of 63-67 cents a share, on revenue of $4.40-$4.43 billion, including the impact from operations of its recent Qwest buy and certain other items.

Analysts, on average, had expected earnings of 72 cents per share, according to Thomson Global Markets I/B/E/S.

For full-year 2011, the company expects earnings of $2.55-$2.65 per share, while analysts were expecting $2.96.

CenturyLink's 2011 outlook looks conservative, brokerage UBS said in a note to clients.

"While the clear focus today is on updated guidance post-Qwest, we do not think investors should penalize the shares for a headline EPS guide that is below expectations," Nomura analyst Mike McCormack said.

CenturyLink shares fell nearly 3 percent as investors flagged its outlook numbers.

Nomura's McCormack said the Qwest merger has the potential to draw out meaningfully higher synergies than current estimates. "We think CenturyLink will reward patient investors."

CenturyLink said it expects to achieve about $375 million in annual run-rate synergies end of 2011 in connection with its 2009 acquisition of Embarq.

STRONG Q1 INTERNET SUBSCRIBER ADDS

During the first quarter, CenturyLink was able to slow the rate of line loss in its business and tap the demand for high-speed Internet and high-bandwidth services, Chief Executive Glen Post said in a statement.

The company lost 516,000 access line customers, ending the quarter with 6.4 million lines, down 7.5 percent from a year ago.

However, it added more than 52,000 high-speed Internet customers to end the quarter with about 2.4 million.

"Access line and broadband subscriber trends were both slightly better than our forecast," Stifel Nicolaus analyst Christopher King said.

For January-March, excluding items, CenturyLink earned 76 cents a share, topping estimates of 70 cents per share.

CenturyLink shares were trading flat at $40.31 on Thursday on the New York Stock Exchange. They touched a low of $39.28 earlier in the day.

(Reporting by Saqib Iqbal Ahmed in Bangalore; Editing by Unnikrishnan Nair and Joyjeet Das)