April 19, 2002
EARNINGS
BellSouth's Profit Climbs on Sale,
But 2002 Outlook Remains Poor
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
GOING SOUTH
Listen a BellSouth conference call on first-quarter results.2
* * *
• SBC Swings to Loss, Predicts Struggle3
04/19/02
• First Impressions: Cingular is spinning its way onto the Web. But will the BellSouth-SBC venture's ads stick with Spider-Man fans?4
04/18/02
• Confusion Bedevils Wireless Customers5
04/17/02
• BellSouth Faces Decisions in Latin America6
04/08/02
• BellSouth Sells KPN Stake7
03/20/02
• BellSouth's Profit Falls 29%8
01/23/02
COMPANIES
Dow Jones, Reuters
BellSouth Corp. (BLS)
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4/19
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ATLANTA -- BellSouth Corp.'s first-quarter profit climbed 30%, mostly on the sale of investments, but the telecommunications company reduced its 2002 outlook for the second time this year, citing weak demand stemming from poor economic conditions in the U.S. and in Latin America.
Still, the regional phone company has seen some signs of improving demand in parts of the beleaguered telecom sector, BellSouth executives said Friday. While total phone lines in service were down 1.8% from a year earlier, the figure rose when compared with the fourth quarter -- the first such increase in well more than a year, the company said.
There is evidence of "some bottoming in the decline in demand" for phone lines, Chief Financial Officer Ron Dykes said. However, he added that the rise in demand hasn't been strong.
BellSouth, the nation's No. 3 local phone company, recorded net income of $1.12 billion, or 61 cents a share, compared with $891 million, or 47 cents a share, a year earlier.
The latest results included a gain of 45 cents a share from the sale of stakes in Dutch telecom KPN and German mobile operator E-Plus, and charges totaling 38 cents a share related to poor investments, loans and the effects of weak currencies in Latin America.
Excluding the items, BellSouth said its adjusted earnings came to 54 cents a share -- flat with earnings excluding items a year earlier. A consensus of analysts surveyed by Thomson Financial/First Call had expected BellSouth to earn 56 cents a share for the latest quarter, excluding the items.
The company lost eight cents a share from its sale of Qwest Communications International Inc. stock during the quarter, and BellSouth expects to unload its remaining 27 million stake in the troubled telecom in the second quarter and third quarters, Mr. Dykes said.
Revenue dropped 6.5% to $5.53 billion from $5.92 billion. Mr. Dykes said that lagging sales to telecommunications carriers were the biggest drag on revenue during the first quarter. That business brought in about $4 billion in sales last year, he said, or about 13% of BellSouth's revenue.
BellSouth Again Lowers Forecasts
BellSouth said it now anticipates adjusted 2002 earnings of $2.36 to $2.43 a share, including the effects of accounting changes but excluding other items such as foreign-currency gains or losses that the company deems nonrecurring. It was the second revision this year, down from revised forecasts of $2.41 to $2.46 a share given in February.
The company said Friday expects revenue growth of 1%, down from the already revised 2% to 4% growth given in February. Based on 2001 results, the new estimate suggests BellSouth will book $29.9 billion in 2002 revenue.
The earnings projection was in line with the $2.40 predicted by analysts, but the revenue outlook fell a bit shy of the $30.38 billion Wall Street has been projecting.
In the first quarter, BellSouth recorded domestic-wireless revenue of $1.2 billion, benefiting from the company's 40% stake in its Cingular Wireless. Cingular, a joint venture between BellSouth and SBC Communications Inc., added 533,000 customers during the quarter. On Thursday, SBC, the nation's No. 2 local phone company, reported a loss of $81 million1, compared with net income of $1.85 billion a year earlier.
Latin American Operations Suffer
BellSouth was particularly buffeted by its Latin American operations. Consolidated revenue from the region stumbled 15% to $659 million. The company has expanded from its Southeast U.S. base into 11 Latin American countries, becoming one of the region's dominant wireless carriers. BellSouth said it has 224 million customers in various businesses.
But currency fluctuations in Argentina and Venezuela have eaten into profit over the past couple of years. BellSouth lost 11 cents a share from currency devaluations and depreciation and 14 cents a share on impaired loans to its two businesses in Brazil during the first quarter. The company warned in February that it will face similar problems for the full year.
The company also is continuing its push to offer long-distance service in the U.S. BellSouth refiled an application with the Federal Communications Commission to sell long-distance service in Georgia and Louisiana after withdrawing a similar application in December. Regional Bell operators aren't allowed to sell long-distance service inside their home regions until they have proven to regulators that their markets are open to competition.
Also, Mr. Dykes said BellSouth is prepared to tap long-distance sales as a new source of revenue. "We strongly believe that in the second quarter, we're going to be in the long-distance business in Georgia and Louisiana," he said.
In February BellSouth consolidated 75 call centers into 28 offices to achieve greater efficiency and cost-savings. The ensuing job cuts were part of the 4,200 positions BellSouth announced it would trim in 2002. Since the end of 2001, BellSouth cut its debt by more than $1 billion, or 5.2%. At the end of the first quarter, total long-term debt was $14.08 billion.
Excluding Cingular, BellSouth expects to spend $4.2 billion to $4.4 billion in 2002, down from the revised forecast of $4.8 billion to $5 billion issued in February. One area BellSouth will spend less in is residential lines. Mr. Dykes said the drop in residential-access lines primarily has been due to customers dropping second lines. "We are not pushing second lines, because of utilization of capital," he said.
At its data operations, BellSouth expects full-year revenue growth in the midteens, down sharply from the 22% to 25% growth forecast in February.
However, BellSouth still expects to have 1.1 million high-speed Internet customers at the end of the year. BellSouth added 108,000 digital-subscriber-line customers in the first quarter. Revenue from the data-service group rose almost 15% to $1.12 billion as a result of continued growth in broadband access for residential customers.
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