AT&T earnings in downtrend, shares rate a consensus 'hold'

Taking Stock

Your Money

January 25, 2004|By ANDREW LECKEY

I'm an AT&T Corp. shareholder seriously reconsidering my telecom holdings. What is the outlook for the company?

- B.P., via the Internet

The nation's largest long-distance carrier keeps tightening its belt.

Despite its enormous annual revenue, consistent capital spending and excellent ratings on J.D. Power customer-satisfaction surveys, Ma Bell faces fierce price wars and competition from wireless and Internet-based calling.

It has aggressively expanded its offering of bundled local and long-distance services to reach a total of 35 states. It also plans to offer Internet-based telephone service in the top 100 U.S. markets by the end of this year.

To cut costs, the company has frozen pay for 43,000 managers during 2004 and last year postponed until September employee raises due in April. It eliminated 12 percent of its work force in 2003, taking a $60 million charge in the fourth quarter to cover the cost.

There have been executive shake-ups. President Betsy Bernhard resigned after 13 months on the job because of disappointing sales. She was replaced by William Hannigan, chief executive officer of the Sabre Holdings Corp. travel firm, who previously worked with AT&T Chief Executive Officer Dave Doman at Sprint and SBC Communications.

Hannigan's goal is to boost revenues from AT&T's business service, which are in decline as regional Bells enter the long-distance market with discounts, and long-distance rival MCI continues to cut rates.

Shares of AT&T are up 6 percent this year, after declines of 19 percent in 2003 and 28 percent in 2002. It boosted its dividend payout after Congress cut taxes on dividends.

The stock rates a consensus "hold" recommendation from analysts who track it, according to the Boston-based First Call research firm. That consists of seven "buys," 10 "holds" and 13 "sells."

AT&T earnings are projected to decline 31 percent this year, vs. the 6 percent drop forecast for the fixed-line telecommunications industry. Earnings are expected to go down 18 percent in 2005, and the projected five-year annualized decline is also 18 percent.

An audit proved embarrassing last year. AT&T fired two employees for not following proper procedures and concealing $125 million in expenses during 2001 and 2002.

It said those accounting problems didn't materially affect earnings.

Andrew Leckey is a Tribune Media Services columnist. E-mail him at

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