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CenturyTel stock takes hit after earnings drop

CenturyTel Inc.’s stock dropped more than 13 percent last Wednesday, following the company’s release of less-than-stellar fourth-quarter operating results and warnings of first-quarter and full-year profits coming in below expectations. The results prompted analysts to downgrade CenturyTel’s stock and cut future earnings estimates.

Even with a 25-percent increase in fourth-quarter company revenue from $422.1 million in 1999 to $527.1 million in 2000, CenturyTel reported a drop in net income from $59.7 million in 1999, a return of 42 cents per diluted share, to $57.1 million last year, a return of 40 cents per diluted share. Earlier this month the company predicted earnings per share of between 38 cents and 40 cents on revenue of between $517 million and $533 million.

CenturyTel blamed the poor showing on additional interest expense related to its acquisition of 500,000 lines from Verizon, lower-than-anticipated telephone revenue due to access rates in Wisconsin and reduced wireless roaming revenue.

The company warned first-quarter earnings would come in between 34 cents per share and 38 cents per share, below analyst expectations of 40 cents per share. For 2001, CenturyTel said it expected earnings of between $1.65 per share and $1.75 per share, below estimates of $1.85 per share.

“We are confident in our ability to drive incremental cash flows, reduce debt and enhance our earnings growth rate over time,” explained Glen Post III, president and chief executive officer of CenturyTel. “We also expect to resolve the access rate issues in Wisconsin by the end of the year as we are committed to working with the Wisconsin Public Service Commission to obtain a fair solution.”

Following the earnings report, CIBC World Markets downgraded CenturyTel from Strong Buy to Hold; ING Barings cut its rating from Strong Buy to Buy; and Legg Mason downgraded the stock from Strong Buy to Buy. Legg Mason cut fiscal 2001 earnings estimates to $1.65 per share from $1.85 per share, with a stock price target of $45 per share.

Goldman Sachs kept its Outperform rating on the stock but lowered its 2001 estimates from $1.90 per share to $1.65 per share. Jefferies also maintained its Hold rating while cutting its target price from $40 per share to $36 per share, and lowering its earnings estimates from $1.80 per share to $1.70 per share for 2001 and from $2.10 per share to $1.90 per share for 2002.

CenturyTel’s stock, which was trading near its 52-week high of $40 per share in early January, was down as low as $28 per share in trading last Wednesday before closing at $31.38 per share.

CenturyTel’s wireless operations fared a little better posting an 11-percent increase in revenue during the fourth quarter from $100.5 million in 1999 to $111.7 million last year. Wireless operating income from recurring operations was up almost 18 percent from $22 million during the fourth quarter of 1999 to $25.9 million in 2000.

The company said it added more than 26,000 contract wireless subscribers during the quarter with an average monthly revenue per user of $49, the same ARPU number as the fourth quarter of 1999.

“CenturyTel achieved a 56-percent increase in contract customer net additions as compared with fourth quarter 1999,” said Post. “More than 19 percent of our wireless customers are now on digital rate plans, nearly quadruple the digital penetration at year-end 1999.”

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