PacTel’s 4th-Quarter Profit Down 39%

Pacific Telesis Group, holding company for Pacific Bell, shocked Wall Street Tuesday by announcing that fourth-quarter profit plunged nearly 40% to $196 million.

Wall Street reacted by sending Pacific Telesis stock down $3.125 a share to close at $41.25 in active trading on the New York Stock Exchange.

Although the company had prepared investors and market watchers for an earnings drop because of business restructuring and writeoffs, the extent of the decline demonstrates the steep downturn of California’s economy and its effect on reducing growth in telephone service, analysts said.

Furthermore, analysts said, they expect Pacific Bell’s performance in its primary California and Nevada markets to continue to decline for at least the next six months before showing improvement.

“The real story is that the regional telephone companies are more sensitive to the economy than in years past,” said Craig Ellis, a telecommunications analyst at C. J. Lawrence in New York. “And it’s showing up particularly on the East and West coasts, where the economy had been fairly strong prior to the recession.”

While not disputing the effect the economy has had on its business, Pacific Telesis officials said the growth rate of new telephone connections last year, at 3.3%, is still running ahead of the 2.2% rate recorded during 1982, during the last prolonged national recession.

Pacific Telesis officials blamed the 39% profit drop partly on the setting aside of $71.5 million to cover costs associated with a massive business restructuring undertaken late last year.

Company officials said the company’s restructuring is designed to generate cash that can be used to pay for its expanding cellular and cable operations in England and Germany, markets that the company said offer far greater profit potential than those being phased out. However, those profits are not expected to start flowing until the mid- or late-1990s, while the cost of building them will be borne in the next three years. Company officials said that prospect could cause a “material” earnings drop.

In the final quarter of 1989, Pacific Telesis earned $322 million. Revenue in the fourth quarter of 1990 slipped 4% to $2.4 billion. For the full year, profit totaled $1.03 billion, down 17% from 1989, while revenues were up 1% to $9.7 billion.

Separately, Bell Atlantic Corp., another regional Baby Bell phone firm, reported that its fourth-quarter profit surged to $236 million from $57.9 million. However, excluding one-time charges, earnings actually declined 1%. The decline also was blamed on a slowing economy and reduced phone demand.

EARNINGS ROUNDUP: D4