Lucent Lowers 4th-Qtr Sales, Pulls 1st-Qtr Forecast
Murray Hill, New Jersey, Nov. 21 (Bloomberg) -- Lucent Technologies Inc. said it overstated fourth-quarter profit after $125 million in sales were recorded improperly. The company told investors to ignore an earlier first-quarter forecast while the accounting errors are investigated.
The shares of the world's largest phone-equipment maker fell 16 percent and have shed three quarters of their value this year after earnings repeatedly fell short of expectations. The company has lost sales of profitable voice switches to rivals including Nortel Networks Corp. and fell behind in fiber-optic gear.
Lucent's latest setback puts more pressure on Chief Executive Henry Schacht, who replaced ousted Richard McGinn last month, to quickly complete the company's restructuring and find a new CEO. The error comes seven months after Lucent tapped Deborah Hopkins from Boeing Co. to become its chief financial officer.
The bad news ``keeps dribbling in,'' said Timothy Ghriskey, a money manager with Dreyfus Corp., which owns Lucent shares. ``This doesn't do a lot for the credibility of the company.''
Lucent's auditor, PricewaterhouseCoopers, and the law firm Cravath, Swaine & Moore will help with the investigation. Lucent said it has notified the U.S. Securities and Exchange Commission.
Lucent said it will reduce profit for the fourth quarter ended Sept. 30 by 2 cents a share. It previously reported fourth- quarter sales of $9.4 billion and earnings from continuing operations of 18 cents a share, spokesman Bill Price said.
Investor Speculation
Lucent didn't specify which sales were incorrectly recorded and declined further comment. Some investors and analysts suspect Lucent's new management decided to restate results to take a less- aggressive policy in booking sales from customers.
With little information to go on, some shareholders worry the announcement points to bigger problems.
``It could be just new management cleaning house,'' said Stephen Humphrey, who manages the $110 million Lord Abbett Large Cap Growth Fund, which owns Lucent shares. ``But when you start involving the SEC and outside auditors and counsel, it has the smell of something deeper.''
Few investors would be surprised if the company has to restate results from earlier quarters, said Kurt Brunner, money manager at Swarthmore Group Inc., with assets of more than $1 billion.
``I don't think it would shock anybody if was more than just this,'' said Brunner, whose firm sold Lucent shares last month.
Lucent, the most active U.S. stock, fell $3.38 to $17.56.
``They're going to have to have a ton of shareholder lawsuits,'' said analyst Greg Geiling of JP Morgan Securities.
Moody's and Standard & Poor's said they are considering downgrading Lucent's credit rating. Moody's rates the company ``A2,'' equivalent to S&P's ``A'' grade.
Profit Disappointments
Hopkins and Schacht were brought in to halt the string of profit disappointments at Lucent. Hopkins is leading the restructuring to make Lucent more responsive to customers and help restore investor confidence.
Schacht quit his post as chairman of former Lucent unit Avaya Inc. to rejoin Lucent, a company he ran until 1998. McGinn had recruited Hopkins, who served as chief financial officer at Boeing, the Seattle-based aircraft maker.
In October, the Murray Hill, New Jersey-based company said profit excluding gains and charges would decline to break-even in the first quarter of fiscal 2001 from $1.08 billion, or 33 cents a share, a year ago. Revenue in the quarter, which ends in December, will fall about 7 percent from $7.9 billion, it said at the time. The drop in sales will be Lucent's first ever.
First-quarter results will be the second quarter in a row that earnings per share fell.
``If you can't get any reasonable guidance, how can you invest in a stock at this point? We need to know what the growth profile of this company is,'' said Rich Crable, an analyst at Loomis Sayles & Co., which owns Lucent shares has been reducing its position in recent months.
Meantime, Lucent rival Nortel Networks yesterday reiterated sales and per-share profit forecasts for the fourth quarter and next year. Nortel shares rose $2.94 to $38.19.
SEC
Last year, the SEC said about half the accounting-related enforcement cases it oversees involve ways that companies report sales. Lucent is the latest company to say it improperly recorded revenue.
``Staff at the commission are not authorized to either confirm nor deny the existence or non-existence of any kind of investigative activity,'' said SEC spokesman John Heine.
Earlier this month, Sunbeam Corp. said SEC investigators plan to seek charges against the largest U.S. maker of small appliances, after a two-year probe of whether the company improperly reported sales under fired Chairman Al Dunlap.
Sunbeam said the SEC plans to recommend action against the company, which sells Coleman camping equipment and Oster blenders. Boca Raton, Florida-based Sunbeam is in talks with the SEC in an attempt to resolve the case, the company said in its 10-Q quarterly filing with the SEC.
Dunlap, widely known as ``Chainsaw Al'' for his reputation as a cost-cutting manager, overstated Sunbeam's results in 1997 by recording sales too early and combining operating expenses with a restructuring charge, Sunbeam said two years ago, when it restated three years of results.
Drkoop.com
Drkoop.com Inc. received notice from its outside auditor in June that the accounting firm disagreed with the way in which the company recognized revenue from certain transactions, according to a September regulatory filing.
PricewaterhouseCoopers also disagreed with the way management recorded expense on certain equity instruments, according to a Form 8-K filed at the SEC. Drkoop.com is a health-care information Web site co-founded by C. Everett Koop, a former U.S. Surgeon General.
The shares of Lucent, the former phone-equipment arm of AT&T Corp., surged following its April 1996 initial public offering amid optimism a deregulating telecommunications industry would spur unprecedented spending on networking gear.
Lucent Shedding Units
Lucent now is shedding businesses to focus on fiber-optic equipment and other fast-growing products. The company spun off Avaya, its office phone- and data-networking unit, and recently agreed to sell its power-systems business to Tyco International Ltd. Lucent also plans to spin off Microelectronics, which makes semiconductors and parts used in optical equipment.
``What the market is telling us is that the stand-alone Lucent is worth zero, and what you're paying for is the Microelectronics spin off,'' said Edward Dowd, an analyst at Independence Investment Associates, which owns Lucent shares.
Nov/21/2000 18:04 ET
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