CenturyTel tops earnings estimates, raises guidance

Rural telco CenturyTel reported anachronistically strong financial results for the second quarter. Excluding non-recurring items, diluted earnings per share rose 25% to 60 cents, topping the 52-cent consensus expectation of analysts surveyed by First Call/Thompson Financial by more than 15%. It also raised its guidance for the rest of the year by 2 cents per share.

“We believe CenturyTel’s strong financial performance this quarter is a good indicator that rural telephony is one of the industry’s brightest segments,” CenturyTel President and CEO Glen Post III said in a statement.

Consolidated revenues from continuing operations rose 7.2 % from last year to more than $438 million, while EBITDA and net income from continuing operations rose 9.6% and 20.2%, respectively.

Particular help came from strong growth in data revenues and a boost in universal service funds. The FCC recently revised USF sizing calculations, giving CenturyTel a payment of $5 million for funds retroactive to January 1 of this year.

Revenues from data services rose 38% for the quarter, trumping recent Baby Bell reports of single-digit growth. The company added almost 6,000 new DSL connections in the quarter, an 18.5% sequential growth, which Chairman and CEO Glen Post said “reflects strong demand for high speed Internet service in our rural markets.” CenturyTel achieved break even cash flow in Internet operations in the second quarter, he said. Telephone revenues, by contrast, have grown only 3.4% from a year ago.

The economic drought was blamed for the company’s loss of approximately 600 access lines during the quarter. But CenturyTel Chief Financial Officer R. Stewart Ewing pointed out that the loss was an improvement over the 1874 access lines CenturyTel lost in the first quarter. The company also added 21,000 long distance customers in the second quarter.

“Comparing our numbers this year to last year, it’s pretty well bottomed out…As a matter of fact, [it’s] a little bit of [an] improvement,” said Post of access line sales. “It will be a while yet before we see a complete turnaround, but we don’t see it really going down much further.”

Some investors expressed concern over an estimated $150 million to $200 million gap in available funds the carrier will face by year’s end. Earlier this week, the company closed an $800 million credit facility consisting of $533 million in three-year revolving credit and $267 in 364-day revolving credit. But it also has a two-year old $400 million bond due in October that the company expects to be able to remarket and a $350 million income tax payment due in December.

“With the corporate bond markets where they are, I think we’ve got to assume there’s not going to be an ability to remarket that facility,” CSFB Analyst Robert Schiffman said on the company’s earnings conference call, asking where CenturyTel would get the $150 million to $200 million it needs.

Post countered his skepticism, saying, “We believe we can go out today and secure that financing.”

In August, the company expects to close both the sale of its wireless division to Alltel and the purchase of Missouri access lines from Verizon.