AT&T, WorldCom Top 2Q Net Views, But Reasons Differ
July 23, 1998 2:44 PM
By Shawn Young
NEW YORK (Dow Jones)--Top long-distance carriers
AT&T Corp. (T) and WorldCom Inc. (WCOM) both
beat Wall Street's earnings forecasts by a penny a share,
but for reasons that were as different as the companies
themselves.
WorldCom was powered by blazing revenue growth,
especially from data, international and Internet services,
while AT&T successfully cut costs as its wireless
business grew and its struggling consumer business lost
less ground than expected.
WorldCom's second-quarter revenue jumped 32% on a
pro-forma basis that reflects acquisitions, while AT&T's
inched up by 1.5% not counting discontinued
operations. The sluggish revenue growth had been
expected, and beneath the tepid top line were
encouraging signs, analysts said.
"What you're seeing is one company - that's WorldCom
- solidifying its focus on the business, whereas AT&T is
in a turnaround situation and it's a fairly quick turnaround
for such a big company," said Morgan Stanley Dean
Witter analyst Stephanie Comfort.
"Both of them are going to be very strong competitors,"
she added.
WorldCom, of Jackson, Miss., is the nation's
fourth-largest long-distance carrier. It will move into
second place and become a more potent threat to
AT&T when it closes its $37 billion merger with MCI
Communications Corp. (MCIC) later this summer or
early in the fall. While it cuts costs, AT&T, of New
York, is planning to sharpen its own competitive
weapons through acquisitions of Teleport
Communications Group Inc. (TCGI), a local phone
company that services business, and cable giant
Tele-Communications Inc. (TCOMA).
The acquisitive WorldCom turned in what Credit Suisse
First Boston analyst Frank Governali termed "a
phenomenal quarter" as it was campaigning for
regulatory approval of its merger with MCI.
"It's very significant that despite being embroiled in the
merger approval process they didn't take their eye off
the ball," Governali said. "It demonstrates outstanding
execution capability. They don't allow the merger
process to overrun the running of the business."
That bodes well for the success of the merger with MCI,
he said.
Results led to a bounce in the shares of both WorldCom
and AT&T, which separately announced plans for the
repurchase of up to $3 billion in stock.
WorldCom shares rose 2 1/16, or 3.9% to 56 3/8 in
heavy Nasdaq trading, while AT&T's NYSE-listed
shares rose 1 7/16, or 2.5%, to 59 1/8 in brisk trading.
"The share buyback plan signaled confidence in the
value of the stock," said Brown Brothers Harriman &
Co. analyst Robert Wilkes. Investors also were
encouraged by AT&T's financial results, its reaffirmation
of previous revenue and earnings targets and its forecast
of earnings of about $1 a share in each of the next two
quarters.
Wireless Leads AT&T, WorldCom Data Up
AT&T reported net income of $1.15 billion, or 71 cents
a diluted share, on revenue of $12.9 billion, compared
to $959 million, or 59 cents, on revenue of $13.17
billion a year ago.
Figures for the 1998 quarter include a $1.04 per share
charge related to staff reductions and 84 cents in gains
from asset sales. Year-ago figures include revenue and
earnings from operations that have since been
discontinued.
Excluding revenue from discontinued operations,
revenue rose 1.5% from $12.7 billion a year ago.
Excluding one-time items and discontinued operations,
AT&T earned $1.49 billion, or 91 cents, compared to
$928 million, or 57 cents a year ago.
Analysts surveyed by First Call Inc. expected AT&T to
earn 90 cents from continuing operations.
Forecasters expected WorldCom to report earnings of
20 cents, excluding one-time items.
It came in at $228 million, or 21 cents, compared to
$44.5 million, or 4 cents a year ago. On a pro forma
basis that reflects the acquisitions of Brooks Fiber
Properties Inc. and network assets from America Online
Inc. (AOL) and CompuServe Corp., the company
earned $29.9 million, or 2 cents, a year ago.
WorldCom's revenue beat expectations and its margins
were better than expected at 31.7%, compared to
24.7% a year ago, analysts said.
Revenue from core communications services rose 38%
on a 39% increase in volume. Each of the three core
categories posted revenue growth of more than 20%,
with Internet revenue leading the pack with growth of
73%. International revenue rose 52%, while data
revenue went up 41% and revenue from voice calls
increased 23%.
At AT&T, the core business posted at best modest
gains with an 11.4% increase in wireless revenue
providing the bright spot after the company announced a
popular flat rate wireless program for heavy users.
Revenue from business services grew less than expected
at 2.6%, but officials attributed the weakness to a
network outage that cost it revenue, but not customers.
The consumer division continued to shrink, but its
revenue dropped 3.7%, which was less than the roughly
5% decline analysts expected.
Given the fact that the business setback was temporary,
consumer is hanging in there and wireless is doing well,
"there is probably going to be upside," said Comfort of
Morgan Stanley.
The company's effort to cut its payroll is far ahead of
schedule, which helped it cut sales, general and
administrative costs to 27.6% of revenue from 30% a
year ago. It's goal is to reach 22% by the end of 1999.
The quarter's results seemed to give investors
confidence that AT&T can reach its revenue,
cost-cutting and earnings goals, analysts said.
"It was a sound quarter. It's not everything it needs to
be," said Chairman and Chief Executive C. Michael
Armstrong in a conference call with analysts. He said
AT&T will continue to work on initiatives to improve
revenue as it trims fat.
-By Shawn Young; 201-938-5248 |
