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AT&T lowers profit targets
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May 2, 2000: 1:01 p.m. ET
Meets 1Q profit estimate, but will miss sales, profit targets for rest of year
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - AT&T Corp. reported first-quarter earnings Tuesday that met Wall Street forecasts, but its stock plunged on a warning of slower-than-expected sales growth and lowered profit expectations for the rest of the year.
The nation's leading long-distance provider pointed to competitive pressure for consumers' long-distance service, which led to a greater percentage of customers changing to lower-cost calling packages or shifting some of their long-distance calls to other technologies, such as wireless providers.
AT&T shares plummeted 15 percent, or 7-3/16, to 41-13/16 in mid-afternoon trading Tuesday on the New York Stock Exchange.
AT&T (T: Research, Estimates) warned of softer revenue numbers in its business services division, and said it would commit more resources to sales there to shore up that core operation.
Stock down sharply on earnings outlook
Excluding one-time items, AT&T earned $1.7 billion, or 53 cents a share, in the first quarter, flat with its earnings of $1.7 billion, or 61 cents a share, in the year-earlier quarter. Earnings per share fell as the number of shares outstanding rose about 18 percent. The per-share numbers were in line with the consensus of analysts surveyed by earnings tracker First Call.
 But the company said the current revenue outlook forced it to lower its earnings guidance downward.
When adjusting the company's new guidance to the same basis used by First Call's analysts, the new range came in at $1.87 to $1.92 a share for the full year, according to First Call, compared with the analysts' forecasts of $2.08 a share this year.
The result would also be well below the $2.22 a share it earned from operations in 1999, as dilution from some pending mergers further push down earnings per share.
The news hurt the newly issued ATT Wireless Group (AWE: Research, Estimates) tracking stock, even though the company made relatively bullish forecasts for that division's revenue and profit outlook. The wireless tracking shares fell 2-1/4, or 6.4 percent, to 33.
Since the IPO for the division didn't take place until the second quarter, it was not broken out as a separate division. Also, no analyst has been allowed to issue coverage or forecasts for the tracking stock yet. But the company said that the division should see earnings before interest, depreciation, taxes and amortization rise 40 to 45 percent this year, better than previous guidance.
Consumer revenue declines
But, overall company revenue is expected to rise in the 6 to 7 percent range, assuming the company is granted approval of a new low-cost calling plan by the Federal Communications Commission, down from the previous guidance of a 9 percent growth, C. Michael Armstrong, the company's chairman and chief executive, told analysts.
If the FCC denies the new plan, revenue would still only rise in the 7 to 8 percent range. But Armstrong said the company is pleased with its long-term outlooks, despite weakness in its core business.
"We know where our problems are. We know what we have to do and how to do it," he said at the end of an analyst conference call that stretched for almost two hours. "I'm confident we're going to re-ignite our growth."
Some telecom analysts said the market was overreacting to AT&T's announcement.
"This is exactly the trend everyone has been talking about in the industry, the trend towards wireless, digital, broadband," said Douglas Christopher, analyst with Crowell Weedon in Los Angeles.
But Christopher said the report suggests that AT&T is losing some market share to new competitors such as regional local phone companies now offering long-distance service, as well as to the new technologies, and he wouldn't be surprised if the company has trouble making even these lowered numbers in the short run.
"If you look at all the big mergers and spinoffs they're going through, there's a lot of distractions, a lot of moving parts," he said.
Mel Marten, telecom analyst at Edward Jones, said the weakened revenue outlook in the growing business-telecommunications sector is troubling. But he believes the company is on the right track to right itself and eventually meet earlier growth projections.
"It doesn't do anyone any good to sell AT&T today, now that it's already down," he told CNNfn Tuesday. "AT&T is not a race car, it's more like a bus, but they've made a lot of money from carrying people on that bus." (439KB WAV) (439KB AIFF)
First-quarter results seen as disappointing
Including all special items, net income climbed to $1.7 billion, or 54 cents a diluted share, from $1.1 billion, or 38 cents a share, a year earlier.
Beyond the new guidance, the earnings report was a bit of disappointment. Revenue was somewhat below internal targets, Armstrong admitted, and the fact that it only met estimates could be seen as a blemish in the current environment. Of the other 25 Dow components to report results so far for the first three months of the year, 23 have exceeded forecasts.
Its revenue from consumer services fell in the quarter, a drop that will accelerate later in the year. Still, company officials said that the growth of revenue and profit from areas other than long-distance service, such as wireless, cable and Internet, has been strong.
Sales rose 5.8 percent to $15.84 billion from $14.97 billion when taking acquisitions into account. On a reported basis revenue increased 12.3 percent.
Revenue from wireless services gained 40 percent in the period to $2.2 billion, and the company said that operating profit going forward should exceed expectations, while revenue from broadband, including cable and some Internet operations, gained 7.9 percent to $1.5 billion.
In addition to the weaker-than-expected revenue growth, the company also revealed it would take a $447 million charge after taxes, mainly for cutting about 6,200 jobs by the end of the year.
The company said the employees affected by the downsizing have already been notified of the previously announced cuts. The news Tuesday was the size of the charge, which came to $773 million before taxes. Of that charge, $682 million was related to the cuts. The remainder of the charge related to the disposition of British operations.
The company said the job cuts would allow it to cut costs at a $2 billion rate by year's end. Armstrong promised that further cost cuts would follow.
"You can consider the $2 billion not as a high-water mark, but as a starting point," he told analysts. 
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