UPDATE 2-R.H. Donnelley Q3 profit rises as cost cuts kick in

* Q3 profit rises 44 pct as cost controls start to pay off

* Shares rise as much as 59 pct

* Ad sales drop 8 pct on weak consumer sentiment

* Full-year outlook revised to low-end of previous range

* Says Q4 ad sales trending worse than Q3 (Recasts; adds executive comments, details, updates share movement)

BY Savio D'Souza

BANGALORE, Oct 23 (Reuters) - Yellow pages directories publisher R.H. Donnelley Corp RHD.N posted a quarterly profit after three consecutive quarters of losses as its cost-control measures began to pay off, and said it would meet its full-year cost-savings target, sending shares up as high as 59 percent.

R.H. Donnelley has been trying everything from scrapping its dividend to cutting jobs, lowering costs and exiting unprofitable markets in an effort to stop a slide that has seen its shares plunge from $61.83 to below $1 over the past year.

The company lowered its debt, another factor weighing on its stock, by more than $150 million in the quarter. It had a debt load of $9.6 billion as of the end of September and expects that to fall below $9.5 billion by the end of the year.

The company posted a third-quarter profit of $26.1 million, or 38 cents a share, up from $18.1 million, or 25 cents a share, in the year-ago quarter.

Excluding items, the company posted a loss of 8 cents a share, while analysts were expecting a loss of 3 cents a share, according to Reuters Estimates.

Revenue fell 3 percent to $648 million but beat analysts' average view of $640 million. Advertising sales, a key indicator of future reported revenue, fell 8.3 percent to $504 million.

"The decline in third-quarter ad sales was as expected due to weak consumer sentiment and the impact it is having on advertisers' ability to make new growth investments, pay existing bills and, for some, stay in business," Chief Executive David Swanson said in a statement.

COST SAVINGS

Normal operating expenses rose 1.6 percent to $314 million in the quarter after absorbing "significant" bad debts and "healthy" investments in its digital expansion, Chief Financial Officer Steven Blondy said in a conference call.

Year-over-year, costs were lower on advertising, headcount and manufacturing. The company has cut 13 percent of its workforce year to date as part of a drive to save costs.

Bad debts as a percentage of revenue rose in the quarter mainly since advertisers, hurt by the weak credit market, fell too far back on payments or just went out of business, Blondy added.

WEAK OUTLOOK

Fourth-quarter advertising sales were trending worse than the third quarter, CEO Swanson said on the call. Due to this, it now expects 2008 results to be at the low end of its previous outlook for advertising sales, adjusted EBITDA and adjusted free cash flow.

"Look at this year's ad sales and assume that's what happens to revenue next year in terms of percentage change," he said.

The company now expects advertising sales to fall 8 percent for 2008. Net revenue is expected to be $2.6 billion with adjusted EBITDA of $1.4 billion.

In July, R.H. Donnelley had forecast 2008 revenue of at least $2.6 billion on a 7 percent to 8 percent fall in advertising sales.

Shares of Cary, North Carolina-based R.H. Donnelley were trading up 15 percent at $1.03 on the New York Stock Exchange's small-cap Arca platform. They had touched a high of $1.42 earlier in the session. (Reporting by Savio D'Souza in Bangalore; Editing by Mike Miller and Vinu Pilakkott)