AT&T Q3
|
AT&T Q3
|
|
(FOOL CONFERENCE CALL SYNOPSIS)* Randy Befumo (MF Templar)
AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> ALEXANDRIA, Va., October 17, 1996/FOOLWIRE/ --- AT&T booked revenues of $13,228 million, an increase of 2.4% from the same quarter last year and a 2.8% increase from the second quarter. This reflects growth in all categories of communications services. Earnings were saw a 10.9% decline to $1,360 million in the quarter. Earnings per share (EPS) dropped 12.2% from the very strong third quarter last year to $0.84 EPS. If AT&T had reported its results with all discontinued operations, it would have made $1,430 billion, or $0.89 EPS. Last month AT&T advised earnings this quarter and next would be below expectations, explaining why this was the case. Despite the pressures on consumer credit card and long distance units, they still wanted to invest aggressively in the business to capitalize on the growth opportunities available to the company.
STATUS OF STRATEGIC RESTRUCTURING. AT&T announced its restructuring plan a little more than twelve months ago. AT&T distributed the remaining 82.4% of the Lucent shares on November 30th. AT&T filed the preliminary statement with the FCC for the NCR spin-off and they have received a favorable ruling from the IRS. They expect to complete the spin-off by the end of the year. AT&T divested its stake in AT&T Capital for $1.8 billion. AT&T is also selling non-strategic assets like SkyPage, the Imagination Network and AT&T Submarine Systems. All of this restructuring and discontinued operations has caused AT&T to restate past earnings.
REVENUE BREAKDOWN. Revenues from communications services including wireline, wireless and products and other services increased 4.0% to $12,800 million. Wireline services grew to $11,600 million, up 2.2% from last year and 2.8% compared to last quarter. Revenue growth was driven by a 5.1% increase in long distance volumes compared to last year, a 2.6% increase from last quarter. Business markets continued to show strong growth, reflecting a healthy industry and recent customer wins. Volumes reflected double-digit growth led by toll-free, 800 and 888 services. Volume growth for business outbound services continued to improve. Data services continued to remain healthy, with digital services like frame-relay growing at extremely good rates. Business markets is having a good year, reflecting their strategy of providing customized solutions. During the quarter, the United Kingdom had its first million minute day and they also expanded frame-relay services overseas.
CUSTOMIZED SOLUTIONS STRATEGY SUCCESS. The company is having success with the solutions-oriented approach. For some of their largest customers like Merrill Lynch and J. P. Morgan, this reflects early success with teaming up with AT&T solutions for systems integration and outsourcing. This quarter they received large contracts from Barnett Banks, Ford and McGraw Hill as well as receiving the benefits of the IBM/Advantis deal. In September, it introduced ATT.all, a business platform that provides integrated billing for all of services to its customers. AT&T Solutions has also done well with helping companies like Textron outsource their network operations.
CONSUMER UNIT. The consumer and small business division is getting hit by competition while preparing for a different communications industry. Revenues increased modestly reflecting a high level of competition. This quarter's volumes and revenues increased slightly from last quarter. While it is early, they are encouraged by their new marketing efforts. AT&T OneRate addresses price misperceptions head-on and they are pleased with the success of the marketing effort. OneRate is the first component of a new marketing program to get them back on track. AT&T has filed to provide local services in all fifty states and have been approved in thirty-seven of the states. They are disappointed with the recent stay and believe the ultimate disposition will result in pricing similar to the Telecommunications Reform Act. The $90 billion dollar local services markets represents a huge opportunity.
WIRELESS BUSINESS. This is another part of AT&T that is having a good year. Wireless services revenues, including cellular, voice and data, messaging and air-to-ground services were $892 million, up 17.7% from last year. Subscriber numbers rose to 4.8 million in the quarter, a 33.3% increase from last year. Including partnership markets, subscribers increased 31.2% to more than 6.5 million. Net subscriber additions in consolidated markets were 245,000, a 15% increase over last year. AT&T increased AT&T Digital PCS service in its 800 megahertz areas. Features include caller-ID, message waiting indicator and short-messaging as well as extended battery life and fraud prevention. AT&T believes this is personal communications services. Customers care about reliability, quality and options, not frequency or access technology. They will be expanding PCS when they activate the first of their 1.9 gigahertz systems in the first quarter of next year. Their wireless footprint includes over 200 million points of presence, covering more than 82% of the U.S. population -- a competitive advantage.
ONLINE SERVICES GROWTH. Revenues from communications products and services were $388 million, up 38.8% compared to last year. This was driven by increases from value-added services, AT&T solutions and online services. AT&T has continued to establish a leading position in online services. AT&T WorldNet had 425,000 subscribers at the end of the quarter and they are one of the top Web site hosters. They introduced a Macintosh browser and WorldNet will also be bundled with Microsoft's operating system. The introduced AT&T managed Internet access to international markets from Europe to Asia. AT&T is uniquely positioned with its technology, customer relationships and know-how to capitalize on online services.
FINANCIAL SERVICES. Financial services were down more than 32% to $396 million, primarily as a result of the securtization program instituted at AT&T Universal Card Services last year as well as increased competition. AT&T securitized $1,000 million of Universal Card debt this quarter. To date, $6,500 million of Universal Card debt has been securitized. Financial services reported an operating loss of $35 million, compared to an operating profit of $47 million versus a year ago. They have initiated a number of programs to deal with this.
NCR FINANCIAL RESULTS. NCR reported that total revenue, which includes sales to AT&T, Lucent and AT&T Capital Corp., declined more than 18 percent to $1.658 billion for the quarter, reflecting the decision to no longer sell personal computers through volume retail channels. When the effects of this decision are taken into account for both periods, revenues in the quarter were down only about 1.1%. Gross margins improved because of dumping the low-margin PC business. Operating expenses were significantly lower reflecting the restructuring. NCR reported an operating profit of $29 million compared to a loss of $196 million. NCR's profitability on a year-to-date basis ahead of schedule, an improvement of $600 million.
MARGIN STRUCTURE AND OPERATIONAL EXPENSES. Expenses for access and other interconnection declined $278 million to 31.8% of revenues from 35.4% last year. This reduction represents in part continued emphasis in lowering both domestic access charges and international settlements. Network and other communications expenses increased $139 million to 14.7% of revenues from 14.1% last year. This expense increase reflects increases in provision for uncollectibles, WorldNet, AT&T Solutions and local services partially offset by lower network expenses. Depreciation and amortization expenses were up $82 million to $744 million from amortization of licenses from the purchase of LIN Broadcasting and additional depreciation for network equipment. Selling, general and administrative expenses were up $3,910 million, up 21.6% from last year. This increase was driven by higher marketing and sales expenses, primarily in the consumer segment, as well as continued investment in local services and Internet access. SGA was 30.5% of revenues compared to 30.3%. Operating income decreased 6% to $2,209 million, an operating margin of 17.2% compared to 19% last year. The effective tax rate was 37.8%.
BALANCE SHEET. Excluding financial services debt, AT&T's debt is $5,600 million and the resulting debt-to-capital ratio is 21.8%, leaving them well positioned according to their spokesman. During the quarter, AT&T spent $1,600 billion in capital expenditures, up more than 60% than last year. Year-to-date, capital expenditures was up 53.9%. This has been to enhance capacity, quality improvements, online, local services and their wireless systems.
DIVIDEND INFORMATION. AT&T intends to maintain its $1.32 per share dividend after the Lucent spin-off, effectively hiking the dividend payment for holders of Lucent and AT&T by a little more than seven percent. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
|
|
Copyright 1996, The Motley Fool |