AT&T; Reports More Diminishing Returns
Troubled AT&T; Corp. reported its fourth straight drop in quarterly earnings Monday, as better-than-expected cable results were offset by a continuing downturn in its long-distance business.
The telecommunications giant posted a second-quarter loss of $149 million on 3% lower revenue of $13.3 billion. In the previous year’s second quarter, the company reported $1.8 billion in profit on sales of $13.7 billion.
Excluding a slew of one-time items, AT&T; said its continuing operations had earnings of 4 cents per share, down more than 90% from 47 cents a share for the same quarter last year. The operating results narrowly beat sharply reduced Wall Street expectations of about 3 cents a share.
It’s unclear whether AT&T;’s slight financial improvement will do much to persuade investors to stick with the company’s multiphase restructuring plan amid a tempting offer from Comcast Corp. to buy the company’s cable business.
On July 8, Philadelphia-based Comcast made an unsolicited offer to buy AT&T; Broadband for an estimated $58 billion in stock and debt assumption. Calling the offer inadequate, the AT&T; board last week unanimously rejected it.
For the quarter, the cable and high-speed Internet business booked 13.7% higher revenue and improved profit margins because of staff reductions and other cost cuts. But analysts said subscriber growth did not meet expectations.
“It did have better-than-expected revenue numbers, and the margin expansion looks good . . . but the fact that the subscriber base did not grow as expected probably strengthens Comcast’s case,” said Ajay Mehra, a money manager at Columbia Management Co., which owns more than 3 million AT&T; shares. “I think it does not change anything. . . . I suspect that the board’s hand will be forced.”
AT&T; Chairman C. Michael Armstrong acknowledged the growing speculation about the Comcast offer, but he said AT&T;’s cable unit “is rapidly improving its margins and cash flows . . . and we determined that the Comcast offer just did not reflect Broadband’s value.”
Another potential suitor, Walt Disney Co., surfaced Monday. Disney spokesman John Dreyer said the Burbank-based entertainment giant is studying whether to join in a bid for AT&T; Broadband.
“Disney has been approached by a number of groups about joining in some kind of an offer for AT&T; Broadband,” Dreyer said. “It’s simply something we’re analyzing.” He declined to elaborate.
AT&T;’s stock price, which had been down all day, continued its slide when the company released its earnings just before the market closed. AT&T; shares closed down 85 cents, or more than 4%, at $20.05 on the New York Stock Exchange. The stock was trading at $19.90 at one point during after-hours trading.
New York-based AT&T;’s second-quarter results were littered with special items and restated earnings and revenue, in part because of the spinoff of AT&T; Wireless, which became a separate company on July 9. Other special items included a $470-million gain on the sale of AT&T;’s stake in Japan Telecom, restructuring charges from layoffs and a $1.1-billion pretax write-off to cover the declining value of AT&T;’s investment in Net2Phone.
Adjusting the figures for those aberrations, AT&T; said its broadband unit booked sales of $2.6 billion, up 13.7% from the previous year’s second quarter, and added 553,000 subscriptions for its higher-end services, such as digital cable, cable telephony and high-speed Internet offerings. Last quarter, the unit added 680,000 subscriptions.
