Globe & Mail - Confusion sparks Nortel selloff
Wednesday, September 30, 1998
Stock plummets 12% after some analysts misinterpret
whether company will meet financial targets
With files from reporter Simon Tuck in Ottawa and Dow Jones.
LAWRENCE SURTEES
Telecommunications Reporter
Northern Telecom Ltd. stock plummeted 12 per cent yesterday
afternoon after trigger-happy analysts were confused about whether
company executives said they would meet revenue targets.
Some analysts thought they heard chief financial officer Wes Scott tell
them the company would not meet its sales and earnings projections for
the next two years, so they rushed to their phones at a New York City
hotel and prompted a selloff.
The company's stock plunged $7.40 to $54.30 on the Toronto Stock
Exchange before trading was halted by the TSE a few minutes before 1
p.m.
Northern Telecom's stock closed at a 52-week low because the halt
was not lifted before the trading session ended. A statement to clarify
the confusion was not issued until after the markets closed.
The selloff shaved almost $4-billion off the value of the global telecom
equipment maker as more than 1.9 million shares were dumped.
The confusion arose at the one-day conference the Brampton,
Ont.-based company holds each year for Wall Street analysts. The
event is closed to the media.
"They really bungled it," said Kevin Slocum, an analyst at Soundview
Financial in Stamford, Conn.
Other analysts said the company's presentation on its financial targets
was confusing.
"Half the room thought [the chief financial officer] was saying one thing,
and the other half the room thought he was saying the other thing,"
Gregory Geiling, an analyst at J.P. Morgan Securities Inc. in New
York, told Dow Jones Service.
"It was just crazy," Mr. Geiling added, referring to the impact on
trading.
Mr. Scott subsequently clarified his statements by endorsing existing
revenue and earnings projections for 1999, Mr. Geiling said.
"What [Wes] told the group was that our third-quarter revenue outlook
is for low double-digit growth, and that share profit for both the quarter
and year will match consensus estimates," John Roth, chief executive
officer of Northern Telecom, said in an interview. "We didn't think that
was such a big deal."
But, Mr. Roth added, "a lot of analysts are very nervous right now
about profit forecasts," referring to a spat of share price declines on
news of revised estimates.
The share price of rival telecom equipment maker Alcatel SA of
France, for example, plummeted last week when it announced that its
results for the first half of fiscal 1998 will fall below expectations.
However, at least one analyst criticized Northern Telecom for casually
burying the fact that its projection of low double-digit growth for the
third quarter was down slightly from its original revenue forecast.
Shortly before Mr. Scott made his remarks, Northern Telecom issued a
news release that reaffirmed its previously stated revenue forecast for
the next three years. Northern Telecom expects its annual revenue to
grow ahead of the industry average of 14 per cent in each of the next
three years, Mr. Roth said in the release.
"They told a story with a bullish bent to it, then proceeded to dampen
expectations," Mr. Slocum said.
Northern Telecom also touted the benefits of its recently completed
$7.6-billion (U.S.) acquisition of Bay Networks Inc. of Santa Clara,
Calif.
"The merger is working," Mr. Roth said in the release.
Northern Telecom had revenue of $15.6-billion in 1997. Sales last year
would have increased to $18-billion if they had included Bay
Networks.
Mr. Slocum said his colleague, Truk Do, attended Northern Telecom's
conference and told him that analysts were really ticked off when they
learned of the diminished third-quarter revenue estimate.
"Needless to say, there was a rush for quiet, cellphone space," Mr.
Slocum quipped.
Northern Telecom also surprised analysts earlier this month when it
announced layoffs of 3,500 employees -- or 5 per cent of its global
work force of 80,000 people -- to gain efficiency savings.
NORTEL UNTIL PRESSURE
Geographic distribution
6 months ended June 30
$million (U.S.)
Canada $609
U.S $4,303
Europe $1,589
Latin America & Asia $1,165
TOTAL: $7,666
theglobeandmail.com |
