<A> Leading Phone Firms Top 1Q Views; Investors Reassured
By Shawn Young
NEW YORK (Dow Jones)--The first quarter was a fine time for the country's top phone companies, many of which rewarded the faith of investors with earnings that beat expectations.
Every major long-distance carrier exceeded forecasts, as did some of the leading upstarts and three of the five Baby Bells. The performance contrasted sharply with disappointing earnings elsewhere in the world of high-tech, where such key firms as Bay Networks Inc. (BAY) and Cabletron Systems Inc. (CS) fell short.
For phone company investors, "the results have had a calming effect," said Merrill Lynch & Co. analyst Daniel Reingold.
Investors had reason to be jittery. Heavy spending and industry turmoil had beaten down earnings for many companies at the same time that stock prices were swept upward by merger speculation and such changes as new leadership at AT&T Corp. (T).
Many of the stocks had risen sharply in recent months and earnings had little effect on them. But the roaring demand and improving margins seen in many of the earnings releases sent a reassuring message at the right time, analysts said.
Long-distance earnings painted a picture of "a healthy industry getting more from its networks despite the threat of pricing pressure that always hangs over this group," said UBS Securities Inc. analyst Linda Meltzer.
Frontier Corp. (FRO), MCI Communications Corp. (MCIC) and AT&T all showed distinct signs of improvement in areas of recent weakness. Spending is coming down at AT&T, while MCI and Frontier made notable progress in reviving their core businesses.
Their progress, along with strong results at other companies, lent credibility to the view of telecommunications services as a growth industry, said Meltzer.
According to First Call Corp., which tracks earnings data, the top four long-distance carriers beat earnings expectations by 5%, while local incumbents came in 2% above forecasts.
Companies that beat expectations published by First Call included: AT&T, MCI, Sprint Corp. (FON), WorldCom Inc. (WCOM), Excel Communications Inc. (ECI), Frontier, LCI International Inc. (LCI), U S West Communications Group (USW), SBC Communications Inc. (SBC) and BellSouth Corp. (BLS). Posting smaller losses than expected were: Qwest Communications International Inc. (QWST), IXC Communications Inc. (IIXC) and Teleport Communicatons Group Inc. (TCGI). Bell Atlantic Corp. (BEL) and Ameritech Corp. (AIT) hit earnings targets.
The results, while heartening, need to be viewed in context, said Anna-Maria Kovacs, an analyst at Janney Montgomery Scott Inc.
"Long-distance has been so iffy for so long that everybody's thrilled when MCI earns half what they made a year ago and they're ho-hum about strong earnings at the RBOCS (regional Bell operating companies)," Kovacs said.
Earnings for Teleport, MCI and LCI were less relevant to investors now that Teleport is planning to merge with AT&T, WorldCom is buying MCI and Qwest is taking over LCI, analysts said. |
