Broadwing posts small Q3 profit, will cut 500 jobs

Broadwing today announced net income for third quarter 2002 of $1.4 million – 1 cent per diluted share – on revenues of $562.9 million, easily beating the 14-cent-per-share loss anticipated by analysts polled by Thomson-First Call. The earnings were a significant improvement over the $27.9 million net loss posted in the same quarter last year, despite the fact that revenues declined 3% year over year.

Local wireline revenues for the quarter decreased 1% year over year, while wireless revenues increased 4% and broadband revenues decreased 3%.

The carrier also reported $62 million in free cash flow at the end of the quarter, and said it reached cash-flow-positive status one quarter earlier than anticipated.

Despite the good news – and the fact that the carrier reduced its debt by $43 million in the quarter – Broadwing also announced a restructuring that will pare 500 jobs from its enterprise solutions unit by the end of the fourth quarter.

(The $43 million in debt from the quarter was retired by $24 million in free cash flow from operations and $38 million from a non-recurring federal tax refund. Broadwing’s credit facility balance at the end of the quarter was $1.66 billion.)

The restructuring will be overseen by Bob Shingler, who was promoted to president of Broadwing Communications from his previous position of president of the carrier’s voice services unit. The restructuring, which also entails the cutting of line costs by about 25% over the next six months, is expected to reduce expenses by about $200 million annually.

It is part of a five-point plan to address “financial and strategic overhangs” that have had a negative impact on the company’s stock performance, said Kevin Mooney, who was named CEO on September 20. “This management team is not happy with this company’s stock performance,” Mooney told investors during today’s earnings conference call.

The plan calls for strengthening the company’s Cincinnati Bell franchise, “aggressively pushing” Broadwing Communications to greater profitability, achieving increased financial flexibility by renegotiating credit facilities (including extending maturities that come due in 2004), considering a full range of strategic options – which could include jettisoning unprofitable units – and “aggressively” de-leveraging the company.

Broadwing Communications was targeted despite the fact that it had reduced its cash burn to $39 million during third quarter from $178 million in the year ago quarter.

“While this is good progress, frankly it’s not enough in this market,” Mooney said. “We’re trying to convert Broadwing Communications from a cash consumer to a cash producer.”

In addition to the restructuring, Mooney said the enterprise group would focus its efforts in the future exclusively on large business customers “that produce the revenue.” Smaller accounts will be moved to Broadwing’s consumer and small business support channel.

Broadwing revised its guidance for full-year 2002, raising EBITDA (earnings before interest, taxes, depreciation and amortization) to $640 million and lowering its capital expenditures (capex) outlook to $190 million from $230 million, the second time this year it has revised its capex guidance. Broadwing also said it expected to record a cash charge of up to $10 million for fourth quarter 2002 as a result of the restructuring of Broadwing Communications.