France's Alcatel Stuns Investors With Profit Decline, Weak Outlook
Dow Jones Online News, Thursday, September 17, 1998 at 10:12
PARIS -(Dow Jones)- French engineering and telecommunications
conglomerate Alcatel SA Thursday reported a 15% drop in operating profit
on a 29% decline in revenue in the first half and warned that profit
this year will be below expectations for an 8% rise.
The news rattled the French stock market and sent Alcatel shares
plunging. Traders said Alcatel's profit warning spooked the market amid
deepening concerns that the impact the Asian and Russian crises are
having on French companies' earnings was grossly underestimated. "This
is all about Asia and Russia," said Jean Faivre, of brokerage house CLC
Bourse. "Alcatel's profit warning proves that this is truly a global
crisis and that any company with an exposure to those regions is going
to take a big hit."
Alcatel expects sales for the full year to rise about 10%, but said
it will be hard hit by reduced capital spending by telecommunications
operators and the financial crises in Asia and Russia.
First-half net profit rose to 15.2 billion francs ($2.7 billion) from
1.5 billion francs a year ago, but only after tacking on 13.7 billion
francs in gains from spinning off its Alsthom unit in the $3.75 billion
stock flotation that created what is now Alstom SA, the engineering
company whose flagship product is the high-speed train known as the TGV.
Part of the gain came from the sale of Alcatel's Cegelec unit to Alstom.
Alstom is a former joint venture of Alcatel and General Electric PLC of
the United Kingdom. Alcatel and General Electric still have 24% stakes
in the concern.
Chairman Serge Tchuruk said that operating profit from the group's
telecommunications activities would fall well shy of analysts'
expectations. He said, however, that operating profit from those
activities would show a gain for the full year comparable with the rise
in first-half operating profit. In the first half, operating profit from
telecom sales rose 33% to 800 million francs from 600 million francs.
Alcatel's telecom operations in 1997 posted an operating profit of
3.1 billion francs. A comparable rise would put full-year 1998 operating
earnings around 4.1 billion francs.
In Paris Thursday, Alcatel's shares plunged 272 francs, or 29%, to
655 francs before trading was suspended for a second time. In the U.S.,
trading in Alcatel's American depositary shares (ALA) was delayed, with
indications that they would open in the range of $18 to $20, down from
Wednesday's close at $31.25.
The rush to dump Alcatel shares in the wake of the profit warning
also reflects the fact that the company graced the top-10 recommendation
lists of many investment banks in both the U.S. and France at the
beginning of the year. "When you have a star like Alcatel that issues a
profit warning in the midst of a crisis, the effect is dramatic," said
Bruno Eudes, a salesman at the brokerage house Meeschaert-Rousselle in
Paris.
Tchuruk downplayed rumors of a merger with any other major
telecommunications supplier, such as Lucent Technologies Inc. (LU).
"There are rumors that they will take over us, Nokia and (German's)
Siemens," the chairman said. "I say bon appetit."
He said the company would continue to look for acquisitions in the
U.S. particularly in the Internet sector but he said that those
acquisitions would be for small companies or start-ups with specialized
activities.
Turning to Alcatel's 44% stake in nuclear power plant manufacturer
Framatome SA, Tchuruk repeated Alcatel's long-standing desire to reduce
its stake in the company and said that he would try to increase pressure
on the French government to allow Alcatel to adjust its shareholding.
Alcatel is Framatome's majority shareholder.
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