Dow Jones: Nor Telecom's Bungled Presentation Hurt Its Credibility
September 30, 1998 1:18 PM
By Ben Dummett
TORONTO (Dow Jones)--Northern Telecom Ltd.'s
(NT) bungled presentation to analysts in New York
Tuesday raises serious questions about management's
credibility, analysts and fund managers said Wednesday.
Northern Telecom's stock tumbled Tuesday and is
down sharply Wednesday, after executives at the
presentation contradicted themselves about the outlook
for the company, and then failed in a subsequent press
release to clarify the matter.
In Toronto, Northern Telecom's stock is currently down
6.75 at 47.55. In New York, it's off 4 7/16 at 31 1/16.
Tuesday's mishap was even more damaging and
surprising given Northern Telecom's status as one of
Canada's bluest of blue-chip companies, and its position
as a global leader in the telecommunications equipment
industry.
"Over the long haul, Nortel has proven to be a fine
company. However, yesterday's conference was
detrimental to management's credibility, primarily
because they were (or seemed) unprepared to deal with
crucial analysts' questions in a direct, upfront manner,"
Murray Grossner, an analyst at Canaccord Capital,
wrote in a note Wednesday following his attendance at
Tuesday's presentation.
Those attending the meeting said it started off well, with
chief executive John Roth, and then president Dave
House, espousing the merits of Northern Telecom's
recent acquisition of Bay Networks. A slew of division
heads then followed with their own upbeat outlooks for
their specific businesses.
Ian Craig, president of Northern Telecom's Carrier
Networks division, sparked applause after saying the
company is in a great position to sell equipment to cable
television companies trying to become telephone
companies, commented a fund manager who attended
the meeting.
But then just before a scheduled 15-minute break, chief
financial officer Wes Scott made his comments.
According to the fund manager, who didn't want to be
identified, Scott "in the dying seconds of his
presentation" said that revenue in second half of the year
will be a bit lower than expected in 1998, but that the
bottom line earnings number will meet expectations.
Scott subsequently left the stage, according to this fund
manager, and a scrum ensued in the hallways as
investors and fund managers "tried to figure out what
(Scott) said."
Two other analysts who attended the meeting said about
20 analysts also swarmed around Scott immediately
after he left the stage to ask more detailed questions
about the company's financial outlook. However, the
executive's responses seemed to raise more concerns,
they said.
"Needless to say, a few people ran out with their cell
phones and the next thing you know the stock is down
four or five points," said one analyst.
Execs Seen As Evasive
No one at Northern Telecom Ltd. (NT) was
immediately available for comment.
An analyst who attended Tuesday's meeting said he
heard Wes Scott, Northern Telecom's chief financial
officer, comment during the scrum that the company's
revenues for the third and fourth quarters would be
lower than expectations.
Yet John Roth, Northern Telecom's chief executive, told
Dow Jones later Tuesday in a telephone interview that
Scott only said that third-quarter revenue growth would
fall short of expectations.
It's no wonder the market is confused about the
company's revenue outlook, and has concerns over the
company's handling of the presentation.
"I think the decline (in the stock) has as much to do with
investors' confidence with management, as it does with
the actual business conditions" that Northern Telecom
faces, commented Dave Powers, an analyst at U.S.
broker Edward Jones.
Powers, though, remains confident in Northern
Telecom's management and the company's business
outlook, and has raised his rating on the stock to "buy"
from "hold." He figures that all of the bad news is
already reflected in the stock. In addition, even though
revenue growth might slow in the near term, the
company said it remains on track to hit analysts' earnings
targets for this year and next, Powers noted.
After the 15 minute-break at Tuesday's presentation, a
scheduled question-and-answer period started. Scott
began by clarifying his statements about the company's
financial outlook. Yet, when pressed for more
information about why revenue growth in the near term
would fall short of expectations Scott was evasive, or
unclear, analysts said.
At one point, for example, an analyst said Scott was
asked point blank how the company's financial results
for the third quarter would compare with those of the
second quarter. But Scott answered the question by
trying to compare the third quarter of 1998 with the
year-earlier period.
In response, the questioner, according to this analyst,
said: "But wait a minute, that's not the question I asked
you, I asked you what's happening in Q3 versus Q2 this
year." The questioner then turned around and said "what
the hell is this?" recounted the analyst, who didn't want
to be identified.
Murray Grossner of Canaccord Capital wrote in his
Wednesday note that Northern Telecom executives tried
to calm concerns about revenue growth by saying the
company is "on top" of the situation. Yet when asked a
direct question about whether the company's
third-quarter book-to-bill ratio would be positive,
Grossner wrote: "the answer was yes, we expect it will
be but really it is too early to know, (hence it may not
be)."
Despite the sell-off in the stock, Grossner said he
maintains his "reduce" rating on the stock, which was
imposed in June when the stock was trading above
C$90. He wrote that the stock is "fast-becoming
long-term value, but we believe some form of base
building is required."
-By Ben Dummett; 416-943-7807;
ben.dummett@dowjones.ca
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