AT&T: Net off 24%,
expects further drop

Bloomberg News

NEW YORK -- AT&T Corp. said first-quarter profit dropped 24 percent and warned that second-quarter earnings will fall further as it spends more to enter new markets and fight rivals in its long-distance and wireless units.

Profit from continuing operations fell to $1.12 billion, or 69 cents a share, from $1.47 billion, or 92 cents, in the year-earlier period. That's a penny short of the average estimate of 70 cents from 18 analysts by IBES International Inc.

The lower-than-expected results show that AT&T's split into three companies has yet to be the promised boon to shareholder value. Shares are down 20 percent since Dec. 31, when AT&T completed the spinoff of its computer and equipment businesses, leaving it a long-distance and wireless provider. The stock fell 621/2 cents to close at $33 today on the New York Stock Exchange.

"It looks as if AT&T will be toward the bottom half of their 1997 earnings range," said William Deatherage, an analyst at Bear Stearns Co.

AT&T's sales rose 1.6 percent to $13.05 billion from $12.85 billion. Sales in the consumer long-distance business fell 1 percent to $6.06 billion, while calling volume, or the minutes of use on its network, was unchanged from a year earlier.

"We're seeing continuing pressure in particular on the consumer long-distance side," said Frank Governali, an analyst at CS First Boston.

That trend is likely to continue this quarter, as AT&T fights MCI Communications Corp., Sprint Corp. and smaller companies that have made inroads in the residential marketplace.

AT&T said it expects about the same 25 cents-a-share dilution from new businesses in the second-quarter. That will push down profit to less than 61 cents a share. Analysts were expecting earnings of 66 cents, according to the average estimate of 8 analysts by IBES.

In the 1996 second quarter, AT&T earned $1.52 billion, or 94 cents, on sales of $13.03 billion.

AT&T on a conference call reiterated its goal of earning $3.45 to $3.75 a share from its main long-distance and wireless operations this year.

"We remain steadfast in our commitment to grow our core business, invest in growth initiatives, cut costs, focus our resources and meet our earnings targets," said AT&T Chairman Robert Allen.

In the first quarter, spending to enter the local phone market and other new businesses diluted earnings by about 25 cents, AT&T said. The company also continues to lose customers in its main long-distance businesses.

Volume, or minutes of use on its long-distance network, rose 6.7 percent. That's less than half the 14 percent first-quarter growth from Sprint, the No. 3 U.S. long-distance company. No. 2 MCI is expected to report first-quarter earnings on Thursday. AT&T's revenue from communications services, which includes long-distance and wireless operations, rose 2.3 percent to $12.66 billion.

AT&T split from NCR Corp., Lucent Technologies Inc. and AT&T Capital Corp. last year. The company said earlier this month it will sell AT&T Submarine Systems, which lays fiber-optic cable underseas, to Tyco International Ltd.