Embarq expects spinoff costs to initially hurt earnings
DAVID TWIDDY, Associated Press
Posted on Thu, May. 04, 2006
kansas.com
KANSAS CITY, Mo. - "Embarq Corp., the soon-to-be independent local division of Sprint Nextel Corp., said Thursday the cost of separating from its parent company will hurt earnings in its first year.
In the company's first guidance to investors, Embarq said it expected annual operating income of between $1.45 billion and $1.55 billion, down from the $1.76 billion the company said it would have reported last year had it been a separate company.
Operating revenues are expected to dip from the $6.7 billion the company would have reported last year to between $6.4 billion and $6.5 billion.
Embarq, based in Overland Park, Kan., is scheduled to spin off from Sprint Nextel on May 17. In a separate filing with the Securities and Exchange Commission on Thursday, the company said its stock would begin trading on an "as issued" basis.
Tim Horan, an analyst with CIBC World Markets, told investors in a research note that he valued Embarq shares at around $70, based on the prices of similar stocks.
"We expect the stock to initially trade below this range, but appreciate...as the market gets more clarity on its cash flows," Horan said.
The company said it expected one-time expenses tied to the separation to increase to $125 million and that annual corporate support costs are expected to grow by $80 million this year and by $100 million by 2008. In addition, product distribution revenues will decline as Embarq gets out of low-margin markets.
Embarq, which has continued to lose local access lines to cable and wireless competitors, said it expected access lines to decline another 5.5 percent to 7.5 percent. Also, the company said it expected good revenue from its branded wireless products, to be sold through Sprint Nextel's network, but said they would hurt overall profits because of customer acquisition costs.
On the positive side, the company said it expected sales of high-speed Internet lines to increase 40 percent, offset by increased marketing and installation costs. It also said the company would improve productivity as a separate company.
Embarq will be the fifth-largest local phone company in the country with 7.26 million access lines in 18 states, as of last week. The company is expected to have 20,000 employees and annual revenues of $6.3 billion." |
