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AT&T Beats Analysts' Expectations Despite $7.1 Billion Loss in Third Quarter

Posted on: Thursday, 21 October 2004, 22:00 CDT

Oct. 22--AT&T didn't stun the market with its $7.1 billion loss Thursday.

That's because the Bedminster-based telecommunications company warned of the impending trouble two weeks ago in light of its exit from marketing residential phone service.

And despite the losses, some analysts digging into the numbers Thursday found results less grim than they expected.

Revenues from the company's business services unit held steady from the prior quarter for the first time in two years despite predictions they might fall.

CEO David Dorman told analysts on a conference call that the market is still "difficult and chaotic."

But, he added, "our third-quarter results demonstrate significant progress that we're making in transforming AT&T into a more effective competitor."

The nation's largest long-distance carrier reported a third-quarter loss of $7.1 billion, or $8.95 a share, on sales of $7.6 billion. That compares with net earnings of $418 million on revenues of $8.6 billion in the year-ago quarter.

The third-quarter results included a previously announced asset impairment charge of $11.4 billion -- resulting from a decrease in the value of AT&T's network -- and a restructuring charge of $1.1 billion from costs associated with laying off 12,500 employees this year.

The cutbacks came after AT&T lost its bid earlier this year to persuade federal regulators to keep in place favorable rules governing the rates it pays to Baby Bells, such as Verizon, to lease local phone lines.

AT&T said in July it would pull back from the traditional consumer phone market as a result, focusing instead on business customers and new Internet telephone technologies.

Total sales in the third quarter dropped nearly 12 percent to $7.6 billion due to declines in consumer long-distance and pricing pressure from rivals such as MCI competing for business customers.

Excluding the charges, AT&T's profit for the quarter would have been $593 million, or 75 cents per share.

Wall Street analysts polled by Thomson First Call predicted the company would report a 51 cent-per-share profit on sales of $7.33 billion.

Legg Mason analysts called the business segment results "surprising," and said while they had been concerned about the unit's sales, "AT&T's more aggressive pricing stance appears to have, for the time being, stabilized its revenue erosion."

The analysts had expected AT&T's consumer division to lose more than it did.

As for that division, Dorman told analysts, "We've seen resilience within our residential customer base and we expect the consumer segment to remain a significant contributor to AT&T's earnings and revenue performance within the foreseeable future."

Jeff Kagan, an independent telecommunications analyst, said, "AT&T is doing the things that will continue to keep it in business as all the technology and regulation and competitors change the landscape."

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(c) 2004, The Record, Hackensack, N.J. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

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Source: The Record - Hackensack, New Jersey

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