This one defies logic. SBC has rallied in the face of the Dow weakness. Must be a lot of hopefull people holding this one. All this after their recent warning. Reminds me of another POS, WMT. Both will pay the piper soon enough.
public.wsj.com
SBC Cuts Forecasts for 2001, Citing
Slowing Economy, Service Problems
By Shawn Young
Staff Reporter of The Wall Street Journal
SBC Communications Inc. cut earnings and revenue forecasts for 2001, citing a generally slower economy, difficulties getting regulatory permission to sell long-distance service and delays in offering high-speed Internet service to consumers and small businesses.
The San Antonio Baby Bell's stock fell sharply, dragging down stocks of other regional Bells, too, since they face similar challenges.
SBC said it expects earnings growth of 11% to 14% in 2001. Analysts had been expecting growth of 14.5%, leading to a First Call/Thomson Financial consensus estimate for 2001 of $2.60 a share. SBC said it expects revenue growth of 8% to 9%. Analysts were projecting growth of more than 10%.
Last month, Atlanta's BellSouth Corp. cut earnings projections for 2001 citing the cost of introducing high-speed Internet services. This week, Verizon Communications Inc., New York, withdrew its application to sell long-distance service in Massachusetts after it faced regulatory resistance. Verizon said it doesn't expect to change its earnings forecast.
"Most of these issues are not unique to SBC, thus other Bells may produce lower numbers than consensus expectations, but deviations would likely be small," said Frank Governali, an analyst with Goldman Sachs Group in a research note. He said SBC's news reinforces his view that the Bells' "strong recent stock performance is not sustainable."
That fear helped drive SBC shares down $6.75, or 13%, to $46.56 as of 4 p.m. in New York Stock Exchange composite trading Tuesday. BellSouth shares fell $2.63, or 6%, to $41.25; Verizon dropped $3.94, or 7%, to $51.88, and Denver's Qwest Communications International Inc. fell $2.38, or 6%, to $37.63.
The Bells are traditionally viewed as safe stocks, and this year they have benefited both from that belief and from the fact that would-be rivals, ranging from giants such as AT&T Corp. to little-known start-ups, found it very expensive and difficult to compete with them.
Despite recent setbacks, the Bells may well retain most of their safety advantage, said Morgan Stanley Dean Witter analyst Simon Flannery. "The group still has solid fundamentals and there is still a resilience from an economic slowdown," Mr. Flannery said.
SBC Chairman and Chief Executive Edward E. Whitacre Jr. said the company remains on the right track strategically and is prepared to take advantage of its opportunities in the Bells' major growth areas, long distance and the high-speed Internet service known as digital subscriber line, or DSL.
The difficulties that account for most of SBC's forecast reduction are less general than they might first appear, analysts said, because they are largely related to SBC's 1999 acquisition of Ameritech, the Bell that served the Midwest.
Service quality deteriorated sharply in the Ameritech region after the merger, infuriating state regulators and consumers who complained about long waits for new lines, slow repair service and difficulty reaching a company representative who could answer their questions. SBC launched a major drive to solve the problems by hiring and training new employees and transferring workers from outside the region to fill gaps.
It has had to focus on service instead of promoting DSL and preparing applications to offer long distance, which could have met hostility from state regulators angry about shortcomings in basic service.
SBC had factored revenue from long-distance service in California and all five Ameritech states into its projections for 2001. But now it doesn't expect to be able to offer that service in any of those states before the second half of next year. The company also said DSL-related network upgrades are a few months behind schedule because it had to wait for regulators to settle questions about giving rivals access to the new gear.
Despite the setback, Deutsche Banc Alex. Brown analyst Gary Jacobi said he thinks the Bells will have leading market share in not only conventional local-phone service but also long-distance, wireless and high-speed Internet by the end of 2002. Regulators are concerned about that possibility and are getting tougher about making sure the Bells meet their demands, Mr. Jacobi said.
Among those demands is a requirement that SBC compete with other carriers outside its home region. SBC already offers local and long-distance service in Boston, Seattle and Miami and will announce Wednesday it is adding New York City. SBC will start with phone service and soon will add Internet. It plans to reach 30 new markets outside its 13-state coverage area by early 2002.
Write to Shawn Young at shawn.young@wsj.com
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