AT&T Results Disappoint
The stock tumbled despite the fact that AT&T posted a fourth-quarter profit of $516 million, or 66 cents a share -- a huge improvement over the company’s $1.39 billion, or $1.97 per share, loss for the same period last year. In view of the company’s recent sale of its cable division to Comcast Corp. (Nasdaq: CMCSA, CMCSK), however, its profits actually fell below street expectations (see Comcast Chief Is Bullish on Broadband). Analysts polled by Thomson First Call were expecting the company to earn 71 cents a share.
And, while the company reported profits for the quarter, its revenues fell 8.6 percent, dropping to $9.3 billion from $10.17 billion. The largest U.S. long-distance provider blamed the revenue decline on its continued loss of long-distance customers to both wireless substitution and to the regional Bells moving into the space. On a conference call this morning, AT&T CEO David Dorman said that the RBOCs are now competing for more than 70 percent of the company’s long-distance customer base (see RBOCs Get Long Distance Go-Ahead). He noted that the wireless substitution rate had started to slow down.
AT&T also said it would no longer provide quarterly and annual earnings guidance, but would instead offer more detailed forecasts for its operating results. This is intended to help investors more easily track its long-term performance, according to the company.
”Numbers are going to be coming down fast with this thing,” intoned Guzman & Company analyst Patrick Comack, explaining why investors are dumping AT&T’s stock today. “They’ll never be able to grow revenue again… They’re a perpetual shrinking company.”
Other observers, however, say that the harsh market reaction to AT&T’s earnings report this morning could be more due to hyped-up expectations than to truly bad results. “The expectations may have been a bit like putting the cart before the horse,” says independent analyst, Jeff Kagan, pointing out that these were the first results from AT&T without its cable business. “There wasn’t a lot of news here… but I think people didn’t really know what to expect.”
The firm reported losses from continuing operations up from $216 million to $611 million, causing a $0.79 loss per diluted share. AT&T said the loss was largely due to: a restructuring charge to cover the cost of planned layoffs; a $1.03 billion writedown of its investment in AT&T Latin America; and an asset-impairment charge in connection with the value of its DSL assets. The latter charge relates to the company’s extended agreement earlier this month to outsource a large portion of its high-speed residential DSL services to Covad Communications Inc. (OTC: COVD) (see AT&T, Covad Team on DSL).
Earlier this month, the company announced that it plans to cut 3,500 jobs, mainly in its business division (see AT&T Takes Charges, Lays Off). Before the cuts, the company had about 72,000 employees.
Going forward, AT&T said it doesn’t expect to see a significant turnaround in the overall industry this year, but it anticipates its revenues to decline at a slower rate this year than last. “The pessimism in the business outlook has been replaced with extreme caution,” Dorman said on the call [ed. note: from Orange Alert to Yellow, then?].
AT&T said it also expects its capital spending to continue to slump in 2003, probably falling to between $3.3 billion and $3.5 billion for this year, down from $3.9 billion last year. The company anticipates a continued margin decline for the full year 2003. For its first quarter of 2003, it expects a diluted earnings per share of between $0.50 and $0.55.
For the full year 2002, AT&T reported a loss of $13.1 billion, or $17.08 a share. This compares with a net income of $9.15 billion, or $12.51 a share, for 2001. Revenues for the year dropped 10 percent, falling to $37.8 billion from $42.2 billion.
In a separate release today, AT&T said it plans to cut its $22.6 billion debt load by buying back up to $4.33 billion of its bonds with cash (see AT&T Reports Q4, Makes Debt Offer). The company has offered to repurchase its outstanding 6.375 percent notes due March 15, 2004, and its 6.50 percent notes due March 15, 2013. The offer started at 9 a.m. today, and will expire at 5 p.m. on January 30, the company said in a separate statement. Merrill Lynch & Co. Inc. and Morgan Stanley are acting as dealer managers.
“Debt reduction continues to be one of the major goals of the company,” AT&T CFO Tom Horton said on the call.
— Eugénie Larson, Reporter, Light Reading