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BT Group Plc (NYSE:BT) reported second-quarter earnings per share of 90 cents, compared to the Zacks Consensus Estimate of 74 cents, on the strength of tax loss carry-forwards and tax efficiency.

Revenues were down 3% to £5,122million ($8,406 million) including favorable foreign exchange movements and the impact of acquisitions of £118m. Excluding these, underlying revenue decreased by 6% partly reflecting the challenging market conditions.

Group operating costs decreased by 3% to £4,559m. Underlying group operating costs reduced by 9% primarily due to reductions in total labor costs and the delivery of other cost savings by all lines of business. Leaver costs were £21m. Total capital expenditure reduced by £208m to 558m reflecting improved procurement, better efficiency and management of capital expenditure and the timing of capital projects. In total, underlying operating costs and capital expenditure reduced by £575m to £4,194m in the quarter, a reduction of 12%.

Free cash flow was an inflow of £705m, an increase of £336m, compared with last year, reflecting the tax repayment and associated interest of £226m, improved working capital, and lower capital expenditure. Net debt was £9,878m at 30 September 2009 (30 September 2008: £11,028m), a reduction of £639m in the quarter.

The IAS 19 net pension position at 30 September 2009 was a deficit of £6.8bn net of tax (£9.4bn gross of tax), compared with a net deficit of £2.9bn at 31 March 2009 (£4.0bn gross of tax). The market value of the BT Pension Scheme assets has increased by £3.3bn since 31 March 2009 to £32.6bn at 30 September 2009. However, the value of the liabilities has increased to £41.9bn as a result of movements in bond yields and inflation expectations.

The company made progress with cost saving initiatives delivering an 8% decrease in underlying operating costs. Adjusting for a major contract milestone in the prior year, the decrease was 6%. Total labor resource reduced by 1,600 in the quarter and is now 7,600 lower than at 30 September 2008. It has also renegotiated better pricing through procurement channels. Benefits from these actions are expected to flow through during the remainder of 2009/10 and beyond.

BT Group plc, together with its subsidiaries, provides communications services to multinational corporations and public sector organizations. It operates in four divisions: BT Global Services, BT Retail, BT Wholesale, and Openreach. The BT Global Services division provides managed networked IT services, applications management, professional services, and outsourcing solutions to corporate, carrier, and government organizations. The BT Retail division offers a range of communication products and services to consumers, and small and medium-sized enterprises, as well as offers BT Conferencing, BT Directories, and BT Payphones services.

The BT Wholesale division offers broadband, voice, and data connectivity services, as well as interconnects, managed network outsourcing, and value-added solutions to communications providers. The Openreach division connects communications providers, customers to their local telephone exchange giving them access to the U.K. network. The company’s major competitors are Deutsche Telekom AG (DT) and Vodafone Group Plc (NASDAQ:VOD).

Source: BT Surpasses Second Quarter Estimates