2nd-Quarter Profit Up 41% : AT&T; Stock Climbs to a Post-Breakup Record
American Telephone & Telegraph reported Thursday that its second-quarter profit was up 41% from the weak results of a year earlier, helping boost the company’s stock to its highest price since the Bell System was broken up in 1984.
AT&T;’s stock closed at $31.75, up $1.50, in composite trading on the New York Stock Exchange. It was the most actively traded stock on the Big Board, with 10.1 million shares changing hands.
Earnings for the second quarter were $596 million, up from $422 million a year earlier, even though revenue remained flat at $8.4 billion.
For the first six months of the year, earnings were up 36% to $1.04 billion, while revenue fell 3.6% to $16.52 billion. The declining revenue reflected a corporate retrenchment along with continuing losses from computer operations and lower long-distance charges imposed by the Federal Communications Commission.
The company has been digging itself out of trouble since last year, when it earned $139 million--down 91% from 1985--after taking a $3.2-billion charge to cover plant closings, layoffs and depreciation. The benefits of those moves are beginning to show up, Robert M. Kavner, AT&T;’s chief financial officer, told financial analysts in New York.
But Kavner played down the significance of the second-quarter improvement in earnings. He noted that results in the same period of 1986 were hurt by a strike and a number of one-time charges.
“The moon and the stars seem to have aligned properly in the second quarter,” he quipped, before adding that cutbacks and layoffs have placed the company on firmer ground financially and enabled it to turn a profit on lower revenue.
“We seem to be making progress on a course, but we know that there is a lot more in front of us. But our employees have reason to be proud because they have been through hell,” Kavner said.
Independent investment banker Bradford L. Peery of Tiburon, Calif., said he expects the company’s third- and fourth-quarter earnings from its lucrative long-distance business to decline slightly.
“I didn’t see anything very earthshaking in the results,” he said.
Robert B. Morris III, an analyst with Prudential-Bache Securities, agreed. He said operating earnings were nearly flat. Meanwhile, Morris added, other computer equipment manufacturers are showing stronger sales. “This is a cyclical turn, and AT&T; is not aboard,” he said.
Nonetheless, AT&T; has not given up on computers, Kavner said, dismissing rumors that the company will spin off its computer business into a joint venture with Olivetti, which produces AT&T;’s personal computers.
“Our desire to have a successful computer is stronger than ever,” he told the analysts in New York. “We have no plans to exit.”
The company’s common stock has climbed from about $22 a share a year ago, when AT&T; was suffering in comparison to its vigorous offspring, the seven so-called Baby Bells: Pacific Telesis, US West, BellSouth, Southwestern Bell, Bell Atlantic, Nynex and Ameritech. Divested by AT&T; on Jan. 1, 1984, the Baby Bells have enjoyed solid earnings while AT&T;’s performance has been mixed. Its long-distance telephone business has posted profits, but the company’s venture into computers, whose way was cleared by the divestiture, has been trouble-plagued.
Recently, however, the Baby Bells’ stocks have lost ground as AT&T;’s has gained.
Peery said AT&T;’s stock recovery reflects investors’ response to continuing deregulation, which is believed to bode well generally for the company’s long-term outlook even while making it more vulnerable to economic downturns.
TELEPHONE STOCKS How AT&T; and so-called Baby Bell stocks have performed since the breakup of the Bell System on Jan. 1, 1984
Price as of Thursday Company divestiture* close AT&T; $17.433 $31.75 Ameritech 43.00 84.50 Bell Atlantic 32.625 66.00 BellSouth 18.875 38.125 Nynex 30.75 66.625 Pacific Telesis 13.875 25.50 Southwestern Bell 19.625 36.00 US West 27.875 50.375
* Adjusted for stock splits
