Tuesday, February 10, 2009

Qwest Taxes Poorly Explained

Qwest (Q) starts the week off trying to tell everyone that their Q4 Income before income taxes increased 17 percent year over year. Sounds good. This is the lead off bullet on the earnings release. You always lead with your best punch. Then let’s read the numbers and you see that revenues are down, net income is down and net income per diluted share is down. Not good.

Qwest continued to explain the poor financial performance by blaming it on taxes. Read this quote

The earnings per share calculations reflect higher pre-tax income compared to the fourth quarter of 2007, offset by increased tax expense as the company recorded normal effective tax rates beginning in 2008. Income before income taxes in the fourth quarter increased 17 percent compared to the fourth quarter of 2007”

So basically the tax man is taking a bigger bite. Qwest does not really go on to discuss their tax situation to any extent. Taxes are an arcane body of knowledge. Quite frankly most investors, even if they have access to sophisticated resources, have difficulty understanding taxes and their bottom line impact.

Qwest has done a poor job of explaining the future of taxes. They want to keep you focused on traditional metrics. Meanwhile the taxman is in the driver’s seat.