CenturyTel beats the street with low Q3 earnings

Revenue was down $37.7 million from last year’s third quarter, but Monroe, La.-based CenturyTel beat earnings per share expectations by a nickel.

The difference in the two quarters was the $35.9 million of prior revenue settlements recorded in the third quarter of 2005. This year, operating revenues--excluding nonrecurring items--was $619.4 million. Net income, was $78.1 million compared to $99.0 million in third quarter 2005.

The company lost approximately 29,000 active access lines in the quarter and year-over-year have lost about 5%.

“However, customer response for our bundled offerings remains strong and DSL and long distance bundles continue to have a positive impact on churn in our business,” Post said. He added that the company added 28,500 bundled services, which represented a 6.5% sequential growth and over 34% growth for the nine months ending Sept. 30^th.

CenturyTel also added 27,000 high-speed Internet customers bring to over 340,000 the total number of Internet subscribers at the end of the quarter. This puts the company’s penetration rate of DSL-enabled lines at 21%.

Glen Post, chairman and chief executive officer of CenturyTel, said the results, which beat expectations, were solid and driven by continued growth in data revenues and bundled services along with effective cost containment. This helped the company achieve an operating cash flow margin of 48.7%.

Post said the company generated more than $125 million of free cash flow during the quarter and returned more than $100 million of cash to shareholders through the settlement of accelerated share repurchase agreements, cash dividends and the repurchase and retirement of more than 1.7 million shares of common stock.

CenturyTel has set expectations for the fourth quarter between $605 million to $615 million and has raised full year revenue expectations. Increased revenue settlements in 2007 could be offset by a decline in asset depreciation, as certain assets will have been fully depreciated.

Post provided an update on several company initiatives including the AWS auction and video. He said in July the company made a $59 million deposit with FCC to participate in the AWS auction and expected to participate only to the extent that the special price levels might offer good return opportunities in areas where the company could overlap its operating areas.
“In late August we discontinued bidding in the auction as we concluded we could not secure a meaningful spectrum position in and around our service areas,” Post said. “And we received a $58.6 million refund from the FCC in September.”

CenturyTel completed construction of a video headend in its second trial market for IP video in Columbia, Mo. Post said it also is still learning from its Switched digital TV offering in La Crosse, Wis.

“We continue to view video as an important product in our overall product and service portfolio,” Post said.

For 2007, Post said current trends will continue. He will update expected access line loss during the fourth-quarter earnings call, but said he doesn’t expect numbers to be substantially worse.

However, he said he expects an increase in cable-based VoIP offerings in his market. “That will provide more challenges for us,” Post said.

He also expects consolidation to continue in the months ahead. “I think RBOCs will continue to consider selling rural lines. I think it just makes sense for them and I think those opportunities will continue to be out there from time to time.”