AT&T Profits Soar
AT&T's fourth-quarter profits from operations jumped 45 percent, powered by deep cost cuts and robust demand for wireless services.
Ma Bell's mainstay long-distance consumer business, however, continued to decline amid strong competition from cheaper operators.
In the latest quarter, AT&T (T) said profit from continuing operations rose to $1.8 billion, or $1 a share, from $1.25 billion, or 69 cents, in the year-earlier quarter. That met the projections of analysts surveyed by First Call Corp. Sales climbed 4.8 percent to $13.5 billion from $12.9 billion.
Including special items, AT&T reported net income of $2.0 billion, or $1.12 a share, compared to $1.26 billion, or 70 cents, a year ago. The company took pretax charges of $313 million related to restructuring and voluntary retirement programs and incurred a pretax gain of $42 million from the adoption of a new accounting standard.
Looking ahead, AT&T said it expects to earn 92 cents to 95 cents a share in the first quarter, below the First Call estimate of $1.02. The company's estimate does not include the effects of its pending $59 billion acquisition of Tele-Communications Inc. (TCOMA), the second largest cable operator in the United States.
AT&T shares fell 2 1/2 to 85 3/4 in recent trading.
AT&T has undertaken a series of moves since C. Michael Armstrong took over as chief executive in November 1997 aimed at boosting its presence in fast-growing areas such as wireless phones and the Internet while relying less on its traditional but increasingly less profitable long-distance business. Armstrong's also moved quicker than industry observers expected to slash the payroll - 20,000 jobs have been eliminated in the past year - and hack away at administrative costs.
In the fourth quarter, revenue at AT&T's wireless division jumped $302 million, or 25 percent, to $1.51 billion from a year earlier. Wireless is benefiting heavily from last May's introduction of AT&T's "Digital One" rate plan, which eliminates costly roaming charges.
AT&T's customer base rose by 445,000, or 90 percent, from a year ago. At the end of 1998, the company had 7.2 million wireless customers, 850,000 of which belong to its Digital One plan.
Revenue from AT&T's "other/corporate" unit, which includes new services such as local phone service for business and Internet access, increased $274 million, or 34 percent, to $1.09 billion from a year ago.
Business services revenue increased $259 million, or 4.7 percent, to $5.74 billion from a year earlier, surpassing the consumer division. Growth was primarily driven by solid demand for high-speed data access.
The consumer division, meanwhile, sustained a 3.6 percent decline in revenue to $5.5 billion from a year earlier. The consumer business has grown increasingly competitive in recent years, and will become even more so in the near future once the regional Bell local phone companies are allowed to offer long distance. The decline in tha business is among the forces propelling AT&T into new, more lucrative services at home and overseas.
On the cost, side AT&T reduced operating expenses in the fourth quarter by 5.2 percent to $10.34 billion from $10.91 billion a year earlier, giving it added financial flexibility.
Selling, general and administrative expenses declined by $516 million, or 14.4 percent, the sixth consecutive quarterly decrease. In the fourth quarter, SG&A expenses represented 22.5 percent of AT&T sales, a figure the company said it plans to trim to 21 percent in 1999.
By Jeffry Bartash, CBS MarketWatch