If you've ever been in Denver at night, you've seen the blue sign for the QwestCommunications (NYSE: Q ) building. It shines radiantly, marking the downtown financial center. I love driving through the area and I appreciate the landmark. That's why it has been so disappointing to watch the company fall on its face in past years, and why this morning's earnings report feels a little like redemption.
Qwest posted $0.93 per diluted share in net income for 2003 despite a fourth-quarter net loss of $0.17 per share. The results mark its first profitable year since 1999. Full-year revenue came in at $14.3 billion, down 7% from a year ago, but the good news appears to outweigh the bad for once.
For example, Qwest closed 2003 with a total of $17.5 billion in debt. That's a huge sum, but it's still $1.5 billion lower than it was when Fool Mathew Emmert wrote about the company back in November. More than $8.5 billion worth of debt has been shed from the balance sheet since the third quarter of 2002, something management says will produce $250 million in interest savings this year.
The news gets better when you stop by the cash flow statement, where you'll find $87 million in free cash flow for 2003. That's a vast improvement, $463 million better than the year before when FCF was -$376 million.
CFO Oren Shaffer said he expects similar gains in free cash flow during 2004. If true, that would have Qwest generating $550 million in unencumbered cash this year, more than enough to cover its interest payments.
Indeed, these are very positive signs. And, frankly, I'm glad to see Qwest in the news for something other than an accounting investigation.
So, is the stock worth the risk? Not yet. While management has more than proven its worth through cost-cutting, the company can't cut its way to growth. So long as sales are down and investigations loom, the stock just doesn't look attractive.
To its credit, management is addressing its revenue shortfalls by innovating. For example, the company will unbundle its broadband digital subscriber line offering from its phone service, which could steal Internet business from customers of Comcast (Nasdaq: CMCSA ) , Earthlink (Nasdaq: ELNK ) , SBC Communications (NYSE: SBC ) , Time Warner's America Online (NYSE: TWX ) , and Verizon (NYSE: VZ ) .
But, for now, Qwest is a company to watch. And, if you're a local like me, one to root for.
Motley Fool contributor Tim Beyers has lived in the Denver area for more than six years, but he doesn't own shares of Qwest or any of the other companies mentioned. Join him and other Rocky Mountain Fools at the Folly in Colorado discussion board. Only at Fool.com.