AT&T stock plunges under profit warning

Journal Record, The (Oklahoma City), May 3, 2000

NEW YORK (AP) -- AT&T's stock slid 15 percent Tuesday as the company issued its first profit warning under Chief Executive C. Michael Armstrong, fueling worries about whether his radical remake of the nation's largest long-distance company will succeed.

The disappointing forecast, which came as AT&T posted first quarter results that met most expectations, dampened the enthusiasm created by last week's initial public offering of $10.6 billion worth of stock in the company's wireless business.

In fact, shares of the new AT&T Wireless Group also fell Tuesday even as three major brokerages initiated coverage of the stock with a "buy" recommendation.

Predictably, price wars in consumer long-distance ranked high among the culprits that prompted AT&T's revised outlook.

Job cuts in that unit are already a major part of Armstrong's plan to cut $2 billion in costs during 2000, and the company reported Tuesday that 6,200 workers were notified in the first quarter that their positions are being eliminated, mostly in long-distance.

It wasn't clear, however, whether the worsening backdrop for long- distance would lead to even more aggressive cost-cutting in that unit. Still, since cost cuts totaled only $300 million in the first quarter, there would seem to be plenty of pain to come this year.

"We're not going to speculate on job cuts, although we're certainly going to focus on the cost infrastructure of all legacy businesses," said Chief Financial Officer Charles Noski, referring to AT&T's traditional telephone operations.

More unexpected than the troubles in consumer long-distance was the weakness AT&T reported in the far more profitable business of providing long-distance service to companies and other high-volume users, as well as the revelation of regulatory delays in the company's purchase of cable provider MediaOne.

The discouraging update raised new questions about AT&T's ambitious bid to become a new-age communications company, highlighted by an investment of more than $100 billion to buy and upgrade cable systems for telephone calls and high-speed Internet services.

Investors, already slightly dubious about whether a company so large can pull off such a dramatic transformation, wasted no time in trashing the stock. AT&T fell $7 per share to $42, finishing only a shade above its 52-week low, while AT&T Wireless fell $3 a share to $32.25, also on the New York Stock Exchange.

In a conference call following Tuesday's profit report, AT&T said it now expects to produce full-year operating profits of between $1.80 and $1.85 per share rather than the previous estimate of $1.89 to $1.94.

In the first three months of this year, AT&T earned $1.73 billion, or 53 cents a share, in the first three months of 1999, excluding one- time factors and the some ownership interests that produced a net profit of $1.74 billion, or 54 cents a share, for the quarter.

The operating profit matched the 53 cents expected by most analysts, according to a survey by First Call/Thomson Financial.

In last year's first quarter, AT&T posted an operating profit of $1.72 billion, but the per-share breakdown amounted to a heftier 61 cents because the company had not yet issued an avalanche of new stock in its purchase of cable provider Tele-Communications Inc. After one-time items, AT&T's net income totaled $1.08 billion, or 38 cents a share, in the first quarter of 1999.

Revenues came to $15.84 billion in the latest quarter, up 5.8 percent from the combined revenues of $14.97 billion posted a year ago by AT&T and the soon-to-be acquired operations of TCI and IBM Global Network, an Internet services business.

Wireless revenue grew more than 40 percent from year-ago levels, while revenues from business services such as high-speed Internet grew at a high-teen rate.