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AT&T sees lower revenue ahead

    Telecommunications giant AT&T on Tuesday said it topped earnings estimates for its first quarter, but that sales slumped and future earnings will most likely fall.

    The company said second quarter earnings will fall as long as long-distance revenue continues to decline.

    For the first quarter, AT&T (NYSE: T) topped estimates by a penny, and saw revenue increase as a result of strong growth in its wireless and broadband businesses. Earnings were 6 cents a share, matching the company's guidance for between 4 to 7 cents a share, and topping First Call's consensus estimate of 5 cents a share. But they were considerably lower--a decrease of 82 percent--compared to earnings of 34 cents a share in the year-ago quarter.

    Including one-time items, AT&T lost 10 cents per diluted share compared to earnings of 54 cents a share for the first quarter of 2000. The loss includes the effect of new accounting rules, and a $739 million charge related to Excite@Home.

    Revenue increased $862 million, to about $16.76 billion, a 5.4 percent increase over the year-ago quarter. But it came in short of the Street's consensus estimate of $17.30 billion, according to First Call. Pro forma revenue, which is adjusted for the acquisition of MediaOne, the elimination of per line charges, the consolidation of Excite@Home, and closed cable partnerships, increased $336 million, or 2 percent, over the same period.

    "Our business, along with others in the industry, continues to feel the impact of declines in long distance voice revenue," said CEO Michael Armstrong. He also expressed disappointment with the company's margins on Tuesday's conference call with analysts; they are "simply too low, they must improve," Armstrong said.

    Analysts were already edgy ahead of AT&T's results; Sprint's (NYSE: FON) mediocre first quarter report, which included a warning that the year ahead didn't look good, lowered analysts' confidence about upcoming telecomm earnings.

    Sprint's outlook didn't bode well for competitors. "We expect that 2001 will be a challenging year for telecoms," wrote Dresdner Kleinwort Wasserstein analyst Bruce Roberts in a preview of telecommunications earnings. The analyst cautioned that other telecomm companies, including SBC Communications (NYSE: SBC) and Verizon Communications (NYSE: VZ), WorldCom (Nasdaq: WCOM), BellSouth (NYSE: BLS) and AT&T (NYSE: T) could all guide numbers lower for the year.

    AT&T lived up to those expectations Tuesday. The company warned that second quarter earnings will be lower and said it was not able to predict full-year revenue, earnings or cash flow growth for the year because of its restructuring.

    For the second quarter, earnings are now expected to be in the range of 1 cent to 4 cents a share. First Call's consensus was expecting the company to earn 8 cents a share. AT&T's forecast excludes an impact of the AT&T Wireless exchange offering, which is part of the company's restructuring plan. AT&T is planning to distribute shares of AT&T Wireless to shareholders.

    The company also said second-quarter pro forma revenue growth will be in a range similar to its first-quarter growth. Earnings before interest, taxes, depreciation and amortization, a measure of cash flow known as EBITDA, excluding other income, will be in the mid-$4 billion range.

    On the bright side, the company did reaffirm its 2001 guidance ranges given in January for the four units it plans on spinning off: wireless, broadband, Liberty Media and consumer.

    The company also gave an update on the restructuring it announced last October. Under the plan, which is expected to be completed in 2002, the company will split into four publicly-held businesses, trading as either a common stock or tracking stock.

    Two of those business were its strongest revenue-drivers: AT&T Broadband and AT&T Wireless.

    AT&T Broadband, which AT&T also plans to create a tracking stock for by the end of the year, did well for the quarter; revenue increased 10.9 percent to $2.47 billion year-over-year due to increased revenue from video operations, high-speed data and broadband telephony.

    Wireless revenue was strong, increasing 46.2 percent to $3.21 billion in the first quarter compared to the year-ago quarter. AT&T said that it plans to distribute its remaining interest in AT&T Wireless to AT&T common shareholders, but will retain up to $3 billion of shares for up to six months following the split off.

    AT&T Wireless Group (NYSE: AWE) earnings are also reported separately.

    By mid summer of 2001, AT&T also plans to launch Liberty Media Corporation as an independent, publicly-traded company. AT&T's Consumer tracking stock should be distributed later this year.


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