Qwest Communications International Inc. says its fourth-quarter earnings fell 49 percent from a year ago, mainly due to tax effects, while cost-cutting improved its underlying performance.

The Denver-based phone company on Tuesday said it earned $185 million, or 11 cents per share, in the October-December period. That's down from $366 million, or 20 cents per share, a year ago.

The latest results included a charge of a penny per share for severance payments. The company cut 1,700 jobs in the quarter.

Thomson Reuters says analysts it polled expected lower earnings of 10 cents per share.

Qwest says its revenue slipped 3 percent to $3.32 billion.

FedEx Corp. said Thursday its fiscal second-quarter earnings rose 3 percent, narrowly topping Wall Street's expectations, but it announced further cost cuts as demand continues to slump.

Chief Executive Frederick W. Smith said the company's earnings are "increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history."

The Memphis, Tenn.-based company earned $493 million, or $1.58 per share, compared with a year-ago profit of $479 million, or $1.54 per share. Revenue rose 1 percent to $9.54 billion.

Analysts polled by Thomson Reuters predicted a profit of $1.57 per share on revenue of $9.87 billion.

The package delivery company said it will implement pay cuts for senior executives and a 1-year freeze on 401(k) contributions. On Jan. 1, CEO Smith will take a 20 percent pay cut, and other top brass will take a reduction in pay between 7.5 percent and 10 percent.

FedEx (nyse: FDX - news - people ) will also implement a 5 percent pay cut for all remaining U.S. "salaried exempt" personnel.

Combined, the company expects these measures to save $200 million through the remainder of the fiscal year ending in May and $600 million in the next fiscal year.

Even as its fourth-quarter profit beat Wall Street expectations, Warner Music Group Corp. Chief Executive Edgar Bronfman Jr. said Tuesday the company was keeping a tight rein on CD shipments ahead of what could be a rocky Christmas season.

"I don't think any of us know what the Christmas shopping season will be," he told analysts on a conference call. "We are managing inventory very, very carefully and we are not over-shipping."

Warner Music, whose artists include Linkin Park and Madonna, said lower income tax expense and increased digital revenue drove its profit for the fiscal fourth-quarter to Sept. 30 up 20 percent, although it still lost money for the full year.

Quarterly earnings climbed to $6 million, or 4 cents per share, from $5 million, or 3 cents per share. Income tax expense was nearly halved to $13 million.

Revenue slipped 1 percent to $854 million from $867 million as consumers shifted toward digital music and digital piracy continued. The company's own digital sales, which make up 20 percent of total revenue, grew to $167 million from $131 million.

The results easily beat the average estimates of analysts polled by Thomson Reuters, who had predicted a loss of 2 cents per share on sales of $837.6 million. Analysts' estimates typically exclude one-time items.

Warner shares rose 22 cents, or 7.9 percent, to $3.02 in midday trading.

Recorded music revenue dropped nearly 4 percent to $707 million, while the unit's digital revenue increased 26 percent to $156 million. Best sellers included releases from artists such as Metallica, Kid Rock, T.I. and Mariya Takeuchi.

Warner said its investment in signing and developing artists paid off as it increased its U.S. market share by 0.5 percentage points from a year ago to 21.5 percent in the quarter.

Standard & Poor's analyst Tuna Amobi kept a buy rating on the stock.

"Despite piracy, we still view digital revenue as key bright spot, though relatively small, amid (a) continued music CD industry sales decline," he wrote in a research note. "Amid retail shifts, we keep a cautious holiday outlook."

For Warner's music publishing division, revenue climbed 14 percent to $156 million as digital revenue surged 57 percent to $11 million.

Warner reported a full-year loss of $56 million, or 38 cents per share, compared with a loss of $21 million, or 14 cents per share, in the prior year. Losses from continuing operations totaled $35 million, or 24 cents per share, compared with a year-ago loss of $8 million, or 5 cents per share.

Annual sales increased 3 percent to $3.49 billion from $3.38 billion.

Looking ahead, Chief Financial Officer Steve Macri cautioned that worldwide economic volatility and the timing of Warner's release schedule "may result in back-end weighted fiscal 2009 results."

One reason the company faced a tough comparison was the sale of 5 million albums of Josh Groban's "Noel" in the fourth quarter last year, he said.

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Thanks to some timely tailoring, shares of Gap (GPS) jumped 27% on Nov. 21 even as the retailer's sales fell 8%.

The reason for the favorable reaction was another round of successful cost-cutting at Gap, which boosted profits despite the reluctance of consumers to spend at Gap, Banana Republic, and Old Navy stores.

Across the economy, corporate executives are looking to follow a similar strategy. As a potentially nasty recession sets in and revenues drop, firms are forced to cut their way toward higher profits.

Some analysts predict the Gap can continue boosting profits next year even as revenues decline. But eventually, many analysts say, Gap must find a way to draw more shoppers' dollars—not just cut costs through inventory controls, shrinking real estate holdings, or other measures.

A Short-Term Strategy

"While expense management has been impressive, we continue to wonder how sustainable earnings growth is longer-term with deteriorating sales and given a bleaker economic outlook in '09," wrote Banc of America (BAC) analyst Dana Cohen. (BofA handles banking services for Gap.)

Many other firms are taking similar cost-cutting steps, which often involve large rounds of layoffs. Dell (DELL) was also able to increase profits last quarter despite falling sales. The computer maker said it has cut 11,000 jobs in the past year.

"It's a necessary strategy, but it's a short-term strategy," says Dan Genter, chief executive and chief investment officer at RNC Genter. After a certain point, you're no longer cutting fat from your budget, he says—you're cutting bone.

For some firms, cost-cutting can be a healthy process that repositions them for future growth. Greg Estes, portfolio manager at Intrepid Capital Management, cites Starbucks (SBUX), which is shutting down less profitable coffee shops after "growing too fast" for several years. "If and when a positive environment returns, they'll be in a better position [with] better margins and a better portfolio of stores," says Estes, whose funds own Starbucks stock.

However, Estes says that, with some exceptions, it's generally very difficult to cut costs significantly for more than four quarters. After a while, though you may be widening profit margins, you're shrinking the entire firm.

When Are Cuts Permanent?

The financial sector is the most glaring example of these sorts of permanent cost cuts. Faced with a financial crisis and a tough economy, financial firms are slashing costs, shrinking expenses and perks, and laying off hundreds of thousands of workers—sometime alongside mergers with weaker rivals, sometimes not.

For example, Citigroup (C), the recipient of a federal government bailout Nov. 24, "may end up being a shadow of what it was," Genter says. Citi, like other financial firms, faces the problem of leverage, he says. Because it built its business on borrowed money, its contraction is more striking and more permanent when that leverage goes away.

In corporate board rooms, there is a raging debate on how much and how quickly to cut as the economy slows down. If you believe the recession will be over by mid-2009, you may want to hold onto valuable employees and keep facilities open so you can profit from the recovery.

BT Group PLC, Britain's largest phone company, on Thursday reported quarterly earnings rose 18 percent but said it would slash 6,000 more jobs by March to keep costs down and maintain its profits.

Shares surged 9 percent on the news.

The company said profits rose because last year's earnings were artificially weighed by a large one-time restructuring cost, so the job cuts -- which come on top of 4,000 already made -- were necessary to improve overall profitability.

The majority of layoffs will hit workers employed through outside agencies, contractors and offshore workers and represents a 6 percent reduction in BT's global work force, the company said.

Net profit for the three months to Sept. 30 was 400 million pounds ($595 million), compared to 339 million pounds a year earlier, when profits were hit by a 232 million pound one-time restructuring charge. Restructuring charges this year were 72 percent lower at just 65 million pounds ($97 million).

BT said pretax profit before these one-time restructuring and voluntary redundancy costs was down 11 percent at 590 million pounds ($879 million).

Revenue for the period was 4 percent higher at 5.3 billion pounds ($7.9 billion).

Chief Executive Ian Livingston said the job cuts were part of the company's previously announced scheme to reduce costs by as much as 800 million pounds ($1.2 billion) this year, and would help the company's bottom line benefit from its increasing sales.

The company said the 6,000 job reductions would be achieved predominantly by not replacing employees who leave the company. The reductions come on top of 4,000 job cuts the company has made since April.

Of the total 10,000 jobs being cut this financial year, 4,000 are from direct staff and the other 6,000 from outside contractors, including IT and management consultants. The company said cuts would be made across all its business sectors except customer service.

"BT management is now underlining its determination to cut costs in order to benefit from still escalating revenues," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

BT said the biggest drain on second-quarter results was its beleaguered Global Services unit, which offers services to multinational companies and failed to achieve the cost savings it had planned.

Earnings before interest, taxes, depreciation, amortization and costs at the unit plunged 36 percent over the quarter to 119 million pounds ($177 million).

"Three out of our four business units, BT Retail, BT Wholesale and Openreach are delivering on or ahead of target," said Chief Executive Livingston. "But profits in BT Global Services are simply not good enough and we are taking decisive action to put matters right."

Last month, the chief executive of BT Global Services, Francois Barrault, resigned. He has been replaced by Hanif Lalani, who was the group's finance director.

Shares rose 9 percent to 123 pence ($1.84), making BT one of Thursday's strongest performers in London's FTSE 100 stock index, which fell by 2 percent.

The BT job cuts came a day after official statistics showed Britain's unemployment rate rose sharply to 5.8 percent in the three months to September. The rate rose from 5.4 percent in the previous quarter. The total number of unemployed people in Britain is now 1.82 million -- up from 1.79 million in the last figures to August, Britain's Office for National Statistics said.

FedEx Corp. reaffirmed Wednesday it plans to grow revenue by 10 percent and earnings per share by 10 to 15 percent per year.

In fiscal 2008, the package delivery company reported a profit of $3.60 per share on revenue of $37.95 billion.

In a copy of its Corporate Citizenship Report obtained in advance of its official release by The Associated Press, the package delivery company also said it aims to cut aircraft carbon dioxide emissions and truck fuel efficiency by 20 percent over the next 12 years.

Since 2005, FedEx has cut carbon emissions across its air fleet by about 4 percent per available ton mile and driven nearly 14 percent in vehicle fuel efficiency improvements.

Initiatives to reduce fuel consumption include fleet upgrades, flight planning adjustments and efficiency improvements.

Electronics retailer Best Buy Co. says it is sharply cutting its fiscal 2009 earnings outlook below analyst estimates amid what the company called the toughest retail environment it has ever seen.

Richfield, Minn.-based Best Buy (nyse: BBY - news - people ) expects earnings per share between $2.30 and $2.90 for the fiscal year ending in February, down from a prior estimate between $3.25 and $3.40 per share.

The retailer forecast revenue between $43.7 billion and $45.4 billion, as well as 1 percent decline in same-store sales, or sales at stores open at least 14 months.

Analysts expect earnings of $3.02 per share and sales of $46.23 billion for fiscal 2009, according to a Thomson Reuters survey.

Best Buy's same-store sales dropped 7.6 percent in October. Same-store sales are a closely watched performance indicator because they measures sales at existing locations rather than newly opened ones.

Chief Executive Brad Anderson said "seismic" changes in consumer behavior have created "the most difficult climate" ever seen by the company.

A boost in sales worldwide helped Burger King post a 2 percent increase in its fiscal first-quarter profit on Friday, but higher food costs and other expenses still took a bite out of its earnings.

The nation's No. 2 hamburger chain reported increases in commodity, remodeling and acquisition startup costs, leading the chain to miss Wall Street's profit estimates by a penny per share.

Higher commodity costs have been a problem for virtually all restaurant chains, with the price of beef, chicken, cheese and cooking oil all rising.

On a conference call with analysts, Chief Executive John Chidsey said the company's "commodities basket" grew 17 percent in the quarter -- a hefty rise that it partially offset by raising prices on selected items in some markets.

Chidsey said the company is testing a higher-priced Whopper Jr. sandwich in some areas to see whether consumers are willing to pay more for the smaller version of its iconic burger.

He called the higher price "simply a learning project," adding that the company is "hesitant" to permanently raise the price since the higher costs could be more of a short-term problem.

Burger King's biggest rival, industry-leader McDonald's Corp., said this week it would ask franchisees to consider charging a bit more than a dollar for the Double Cheeseburger and replacing the sandwich on the popular Dollar Menu with a less cheesy double burger.

McDonald's has for months been considering tinkering with its Dollar Menu due to high food costs. It also reported higher commodity costs in its latest quarter, but its profit was more insulated from the increases due in part to a 7.1 percent rise in global same-store sales.

Some relief from high commodity prices may be in sight, Burger King said, noting that prices for beef, cheese and oils have "significantly decreased" since the end of July.

"Those commodity costs had skyrocketed and now they've just dropped off a cliff," said Morningstar analyst John Owens.

But it's unlikely that commodity costs will stop weighing down profit. Burger King said it still expects those expenses to rise between 5 percent and 7 percent year-over-year for the full fiscal year.

For the fiscal first quarter, Miami-based Burger King Holdings Inc. said net income rose to $50 million, or 36 cents per share, from $49 million, or 35 cents per share in the year-ago quarter. Burger King earned 38 cents per share excluding charges, one penny shy of Wall Street estimates, according to Thomson Reuters.

Revenue grew 12 percent to $674 million from $602 million. Analysts predicted $667.6 million.

Same-store sales, or sales at locations open at least a year, rose 3.6 percent worldwide. Despite the economic turmoil in the U.S., same-store sales in the U.S. and Canada rose 3 percent.

Stifel Nicolaus analyst Steve West called the same-store sales increase "great news ... bolstering our belief Burger King's consumer in the U.S. is still strong even in the face of severe macroeconomic headwinds."

Burger King said the higher prices in some markets as well as its value menu items and breakfast and late-night menus helped increase sales worldwide.

Overseas, limited-time offer Whopper sandwiches also added to sales, while in the U.S., the company said new products including the Steakhouse Burger and a new Kids Meal featuring Kraft Macaroni and Cheese and Fresh Apple Fries boosted revenue.

The downturn in the economy may have also provided a helping hand to U.S. sales since consumers have increasingly been turning to fast food in an attempt to save cash. Consumers -- spooked by bank failures, declines in the stock market and talk of a prolonged recession -- have cut back on spending in recent months and have been avoiding pricier sit-down chains.

The company also reaffirmed its 2009 profit outlook for earnings per share growth of 12 percent to 15 percent, implying profit of $1.54 to $1.59 per share. Analysts see $1.56 per share.

Burger King said it expects to add 350 to 400 new restaurants in the 2009 fiscal year.

Shares rose 36 cents to $20.60 in afternoon trading

Exxon's Production Falls as Profits Soar

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By Steve LeVine

ExxonMobil's (XOM) third-quarter earnings demonstrate the mixed universe occupied by Big Oil as a whole today—the company reported record profits but its lowest production volume in almost a decade. The Irving (Tex.)-based corporation says it earned $14.8 billion in the third quarter, an increase of 58% from the same period last year. Exxon is on track for a third straight year of record earnings—in both 2006 and 2007, the company earned some $40 billion. In each year, that was the most ever for any company on the planet.

Despite the breathtaking profit, however, the report weighed on Exxon's share price on Oct. 30. Exxon closed up 0.5%, at 75.05, after falling as low as 71.44 during the trading session. One of the main reasons was its reported production volume. The company produced just 3.6 million barrels of oil per day, an 8% drop from the same period last year. It's the lowest production since Exxon bought Mobil in 1999. Since then, Exxon's production has mostly fluctuated between 3.8 million and about 4.2 million barrels a day.

Some of the third-quarter drop was attributable to seasonal hurricanes, maintenance outages at Exxon facilities, and production-sharing contracts that reduce volume it receives when oil prices rise, but that accounted for just three percentage points of the 8% decline. The other 5% was independent of special factors. In prior quarters, the company has noted that it has considerable production increases coming online in the next two years. But the decrease seemed to worry Wall Street, nonetheless.

Stroking Investors

In an unusual statement in the earnings report, Exxon Chairman Rex Tillerson sought to calm any worries about the company's strength amid the global financial meltdown and reassure investors that the company's capital spending plans remain intact. Some smaller energy companies have trimmed capital spending as oil prices have plummeted from a high of about $147 a barrel during the summer to less than $70 a barrel now.

"Despite the continuing uncertainty in world financial markets, ExxonMobil has maintained a strong financial position," Tillerson said. "We plan to continue our disciplined capital investments with our full-year capital and exploration expenditures projected to be about $25 billion, consistent with previous guidance."

Revenue for the quarter was $13.7 billion, 34% higher than the same period last year. The company earned $2.59 a share excluding special items, or 20¢ higher than the $2.39 expected by analysts.