Telecom Shares Hit New Lows Amid Dreary Earnings Outlook

Investors who thought they’d seen the lows in the battered telecommunications sector got a rude wake-up call Tuesday.

Major telecom shares slumped under the weight of a fresh barrage of earnings warnings and analysts’ estimate cuts.

Verizon Communications (ticker symbol: VZ) slid $1.51 to a 52-week low of $42.70 after the largest U.S. local phone company said expenses for acquisitions and the write-down of investments will reduce first-quarter profit by $2.5billion.

Excluding the write-down for so-called goodwill, Verizon said, operating earnings also will be lower than expected. It predicted operating profit of 72 cents a share. Analysts had expected 73 cents.

What’s more, Verizon said it doesn’t expect improvement in revenue growth in the near term. It wasn’t more specific. In January, the company said it expected sales to rise 3% to 5% this year.

Already reeling from continuing weakness in U.S. capital spending, Verizon and other phone giants are facing new problems in their Latin American businesses. Verizon said its write-down was partly for the reduced value of some investments in Venezuela and Argentina.

BellSouth Corp. also is facing problems in Argentina and Venezuela, analysts at SoundView Technology said Tuesday. SoundView trimmed its first-quarter earnings estimate for BellSouth to 56 cents a share from 58 cents, and its full-year estimate to $2.37 a share from $2.39, citing economic woes in Argentina and Venezuela.

SoundView said subscriber growth at Cingular Wireless, a joint venture of BellSouth and SBC Communications, also may be weak in the first quarter.

BellSouth shares (BLS) tumbled $2.33 to $32.05, the lowest since 1998. SBC (SBC) fell $1.63 to $34.90.

Meanwhile, telecom equipment supplier Nortel Networks said that sales plunged in the first quarter, and that it plans to tap a $1.75-billion bank line of credit set to expire today to give itself more financial breathing room. Some of its banks didn’t want to extend or amend the credit line, Nortel said, so it opted to tap it as is.

Sales fell to about $2.9 billion from $6.18 billion in the year-ago period as customers pared spending, Nortel said in a statement.

But Nortel shares (NT) closed up 6 cents at $3.64, as some investors apparently thought the news would be worse. The stock is down 51% this year.

“There’s nothing I see out there that’s suggesting a turnaround for telecom,” said Paul Wright, an analyst at Loomis Sayles & Co.

Among other major telecom issues, Vodafone Group (VOD) fell $1.28 to $17.09, WorldCom Group slid 63 cents to $5.43 and Sprint FON lost 47 cents to $14.75.

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The New York Stock Exchange probably will require its companies to get approval from shareholders for executive options award plans, even if the rival Nasdaq market doesn’t, Chairman Richard Grasso said Tuesday. Previously, the Big Board, which along with Nasdaq is examining changes to its stock-option policies, had said it would institute shareholder approval rules only if Nasdaq did, to avoid a potential competitive disadvantage.

Bloomberg News

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