SBC Posts 14 Percent Drop in Second-Quarter Earnings
Jul. 22–Weighed down by merger costs, SBC Communications saw its earnings fall by 14 percent for the second quarter.
San Antonio-based SBC said profit dipped to $1 billion, or 30 cents a share, from $1.17 billion a year ago as the company absorbed more costs from the acquisition of AT&T Wireless by its Cingular Wireless division.
The termination of a contract with WilTel Communications Group to connect long-distance calls reduced net income by 5 cents a share for the three months that ended June 30. SBC terminated the contract in anticipation of AT&T fulfilling that need. Early this year, SBC announced that it would acquire AT&T for $16 billion.
Excluding merger costs, earnings would have been $1.4 billion, or 43 cents a share, beating Wall Street expectations of 37 cents. Revenue, including income from its 60 percent stake in Cingular, rose 22 percent to $15.49 billion.
The $41 billion purchase of AT&T Wireless last year made Cingular, co-owned with BellSouth, the largest U.S. wireless carrier. SBC said it expects the deal to hurt reported earnings through 2007. The company expects to finalize the AT&T deal by year’s end.
SBC lost 296,000 land lines (traditional telephone customers) for the quarter, well below the 558,000 it lost during the same period last year. The loss was offset by the addition of 360,000 DSL accounts, an increase that SBC attributed to aggressive promotions kicked off in late May.
“When you look at households across the nation, about 70 to 80 percent utilize Internet access. Yet penetration in total is in the low 40s,” said Rick Lindner, SBC chief financial officer, in a conference call. “There is still a lot of upside.”
Lindner said SBC is ahead of projections in its plan to cut 7,000 jobs for 2005. The company has reduced its work force by about 5,000, mostly through attrition. Lindner said that SBC could exceed the projected 7,000 but that the rate will not be the same as during the first half.
Jim Andrew, an analyst for Adventis, a Boston market research firm, said SBC’s number were “pretty impressive.”
“SBC went as bold as it could go with AT&T Wireless and AT&T,” Andrew said. “Now the question is how well they execute. And one thing SBC is good at is execution.”
SBC’s stock closed at $23.71, down 9 cents on the New York Stock Exchange.
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