Qwest to slash 4,000 jobs
By Jon Sarche
Associated Press
DENVER — Qwest Communications International announced yesterday it would cut 4,000 jobs, or 6 percent of its work force, and said the nation's economic slowdown would mean lower-than-expected sales and earnings through at least the first half of 2002.
Chairman and chief executive Joe Nacchio said he expected high single-digit percentage sales growth next year, compared with a previous forecast of about 15 percent growth, and projected earnings growth would slightly outpace revenue growth.
"This is a reflection of the times and it's not easy to do," Nacchio said. "I'm disappointed we couldn't outrun the economy forever."
Analysts said the Denver-based telecommunications company continues to perform well, but its financial forecasts were based on assumptions made when the economy was stronger.
"We think they're the right numbers now," said Andrew Hamerling of Banc of America Securities. "We think they might even be conservative."
Qwest said it expected 2001 revenue of about $20.5 billion, about $1 billion less than it previously estimated, and earnings before interest, taxes, depreciation and amortization of about $8 billion, up from $7.36 billion last year. Qwest had a net profit for 2000 of $995 million on revenues of $18.95 billion.
To help offset the expected declines in revenue and income growth, Qwest said it would reduce its work force from 66,000 to 62,000 by the end of March 2002. It also will eliminate 1,000 staff positions while adding 1,000 sales executives in its global business unit.
To make the job cuts, Qwest will not fill open positions and will continue streamlining operations, a process that began with the June 2000 acquisition of US West, said Qwest spokesman Tyler Gronbach. About one-third of the job cuts will be in Colorado and surrounding states, Nacchio said.
The company also plans to cut capital spending in 2001 from about $8.8 billion to $8.5 billion and reduce its capital budget from about $7.5 billion to about $5.5 billion. That should result in positive cash flow by the second quarter of 2002, six months sooner than previously announced, and allow the company to borrow less than it had expected, Nacchio said.
Analysts had mixed views on the announcement.
"By Qwest coming out this morning and giving, I think, a good description of what's going on today and what's going on next year, it provided some level of comfort and assurance that even at that price, the stock was quite attractive," said analyst Frank Governali of Goldman, Sachs & Co.
Analyst David Bench of Arnhold & S. Bleichroeder in New York attributed the rise to bargain hunting.
"It's just a bounce," he said. "The bad news is out and people are looking at this as a time to get in. We think that's premature. We see a continued downturn in the market and don't see a reason to pick it up."
During a conference call, Nacchio cited declining economic conditions, including high unemployment, slow growth in the gross domestic product, low consumer confidence and other indicators.
He said sales of new phone lines have been anemic, and he wants to put Qwest in a conservative position to ensure continued growth until the economy begins to turn around.
"The economic recovery, when it comes, will be later than most people believed 30 days ago and I believe more moderate," Nacchio said. "Therefore I want to position us to be able to go through that period of time with a strong balance sheet, strong cash position and in some ways, certain good fortune that we spent as much capital as we did earlier on certain strategic platforms."
Qwest is expected to earn 40 cents per share for the year ending Dec. 31 and 57 cents per share in 2001, according to a survey of analysts by Thomson Financial/First Call.
