Earnings Reports for Feb. 5 & 6

Cisco Misses Expectations for the First Time

Computer networking giant Cisco Systems said today its fiscal 2001 second-quarter earnings rose 48 percent but missed Wall Street's earnings expectations for the first time in several years as the company sounded a note of caution about the economy.

"Cisco missed both on revenue and earnings," said Chuck Hill, research director at First Call/Thomson Financial. The company had repeatedly beat Wall Street estimates by a penny a share.

The San Jose, Calif.-based company said its profit before one-time items rose to $1.33 billion, or 18 cents a share, for its fiscal second quarter ended Jan. 27, from $897 million, or 12 cents a share, in the year-ago quarter. Analysts had on average expected Cisco to report pro forma earnings of 19 cents a share, according to First Call/Thomson Financial.

Sales, which had been widely watched for a slowdown, rose 55 percent to $6.75 billion from $4.36 billion in 2000, falling short of Wall Street's expectations for $7 billion to $7.2 billion.

Cisco, which makes an estimated 70 percent of the world's routers that direct traffic on the Internet, also said it is "cautious" about the market pause.

"While we remain cautious about the implications of a brief pause in the current 10-year expansion of the U.S. economy, we believe that Cisco has never been better positioned to help our customers solve their two most important business issues: increasing productivity and creating new sources of revenue," Cisco Chief Executive John Chambers said in a statement.

"We remain confident about the market opportunity ahead of us over the next three to five years," he added. "This confidence is based on the continued impact of the Internet on productivity, and just how much more work needs to be done before every company is an e-company and a majority of the world's countries are e-countries.

Chambers warned less than two weeks ago that January's business was "more challenging than we anticipated," leading many analysts to question whether Cisco's and the telecommunications industry's growth are slowing.

In after-hours trading, Cisco's stock fell to $34-3/8 on Instinet after closing at $35-3/4, up $1-3/16, or 3.44 percent, on Nasdaq. In the past year, the Internet equipment infrastructure company's stock has underperformed the Nasdaq 100 Index by almost 6 percent.

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Disney Earnings Helped by Theme Parks

Walt Disney, (Disney is the parent company of ABCNEWS.com) reported today a higher than expected rise in fiscal first-quarter earnings before one time charges, with improvements in its theme park business, films and its hit show Who Wants To Be A Millionaire offsetting weaker advertising sales in its broadcasting business and losses in its Internet Group.

The Burbank, Calif., company, which owns a film studio, the ABC and ESPN television networks and several theme parks, reported a profit of $341 million, or 16 cents a share, for the three months ended Dec. 31, compared with $278 million, or 13 cents a share, a year earlier. The results exclude one-time charges and assume the same portfolio of assets in both periods.

The Wall Street consensus estimate compiled by research firm First Call/Thomson Financial was a profit of 15 cents a share before charges.

Excluding losses of $228 million from its stake in the Disney Internet Group, the company reported a profit of $594 million, or 28 cents a share.

Disney announced last week it would shut down its money-losing Internet media network Go.com and dissolve its tracking stock for the Disney Internet Group, converting those shares into common stock as of March 20. The company said at the time it would cut 400 jobs and take more than $800 million in second-quarter restructuring charges.

For the first quarter, Disney took a one-time charge of $228 million for accounting changes related to its films and a $50 million charge for changes in derivative accounting.

Including those charges, the company reported net income of $63 million, or 3 cents a share, compared with $356 million, or 17 cents a share, a year earlier.

Revenues climbed 7.2 percent to $7.31 billion from $6.82 billion, on a pro forma basis.

The company's media networks segment, its largest, saw an 8 percent decline in earnings, despite a 6 percent increase in revenue. Disney said broadcasting results declined due to soft advertising, lower ratings and higher programming costs, although these factors were offset by more episodes of its hit ABC show Who Wants To Be A Millionaire.

Disney said its theme parks earnings rose 8 percent on a 9 percent increase in revenue during the quarter.

Film division results flipped to a profit from a loss in the year-ago period, on a 15 percent increase in revenues, helped by the release of Toy Story 2 on video and films like Remember The Titans and Unbreakable.

Consumer products earnings fell 13 percent on a revenue decline of 6 percent.

The figures were released before financial markets opened.

Along with other media stocks, however, Disney has sunk in recent months based on weakening advertising sales compared to last year. The shares reached their 52-week low in December, briefly touching $26.

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PepsiCo Posts Sharply Higher Earnings in Q4

PepsiCo reported a nearly 25 percent increase in fourth quarter earnings on Monday, citing double-digit profit growth in both its snacks and beverage businesses and an extra week of results in the latest period.

The nation's biggest salty snacks maker and second biggest soft drink concern earned $611 million, or 41 cents a share, in the three months ended Dec. 30 compared with $490 million, or 33 cents a share, a year ago.

Revenue rose to $6.4 billion from $5.7 billion a year earlier.

PepsiCo ends its fiscal year on the last Saturday in December and that meant the latest quarter included 17 weeks compared with 16 the previous year. The extra week boosted earnings by $44 million, or 3 cents a share, on sales of $294 million.

Without the extra week, it earned $567 million, or 38 cents a share, on sales of $6.1 billion in the latest period.

Analysts surveyed by First Call/Thomson Financial had been looking for earnings of 38 cents a share for the quarter.

"Our strength was broadbased with solid earnings growth across every business, domestic and international," said Roger Enrico, chairman and chief executive.

He said the company expects "consistently healthy results" throughout this year.

Operating profits at the Frito-Lay snacks division rose 10 percent in North America and 11 percent overseas if the extra week is excluded in the latest quarter. The Tostitos and Lay's chip brands led snack food volume growth in North America,

Pepsi-Cola North America's operating profit climbed 13 percent despite investment in introducing lemon-lime Sierra Mist and a line of Dole juice drinks. Pepsi-Cola profits overseas were flat in contrast to a $7 million operating loss last year.

Looking ahead, Pepsi plans several new product launches including Pepsi Lemon Twist and the Code Red flavor extension of Mountain Dew, as well as contributions from its newly acquired SoBe noncarbonated beverages this year.

Profits rose 16 percent at the Tropicana juice division.

For the year, PepsiCo earned $2.18 billion, or $1.48 a share, versus $2.05 billion, or $1.37 a share, a year ago.

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The company also repeated its outlook for 2001 earnings.

"Our solid operating performance in 2000 confirms both the validity of our business model and our ability to execute on it," said Verizon Chairman and Co-Chief Executive Charles Lee.

Verizon, formed through last year's merger of Bell Atlantic and GTE , said profits rose to $1.9 billion, or 77 cents a share, compared with $1.7 billion, or 63 cents a share, a year ago.

The results were in line with company and Wall Street forecasts per share, according to research firm First Call/Thomson Financial.

The company said its fourth-quarter results were 70 cents per diluted share, on net income of $1.9 billion, an 11.1 percent rise from 63 cents, or $1.7 billion, in the same period the year before.

Verizon said fourth-quarter revenues rose to $16.9 billion from $15.8 billion for the year-ago period. The reported results for all periods incorporate the net after-tax effect of gains, charges and other adjustments.

Shares of Verizon have gained about 21 percent in the past three months. They have outperformed the Standard & Poors 500-stock index by about 34 percent.

Total adjusted U.S. telecom revenues grew 3.3 percent for the fourth quarter, to $10.9 billion.

Verizon said it expected its 2001 earnings to be in the range of $3.13 to $3.17 a share. The company made a similar forecast in December.

Verizon said it added 190,000 digital subscriber lines in the fourth, 46 percent more than in the third quarter. The lines allow high-speed Internet access through regular telephone wires.

The 540,000 lines in service at the end of the year represent an increase of more than 500 percent over the number in service at the end of 1999.

The company said it was "well positioned in 2001 to further transform our growth profile and move into our target ranges of 8-10 percent revenue growth and $3.13-$3.17 earnings per share."

The company made a similar earnings forecast in December.

Verizon's long-distance unit ended the year with 4.9 million customers nationwide, 44 percent more than the year before. Verizon is the fourth-biggest U.S. provider of

long-distance services.

Verizon Wireless added 1.2 million net new customers during the fourth quarter, 5.9 percent more net additions than in fourth-quarter 1999. The total number of customers grew 15.6 percent year-over-year to 27.5 million.

Wireless revenues for the quarter grew to $4.1 billion, up 16.7 percent from fourth-quarter 1999.

Verizon said it added 190,000 digital subscriber lines in the fourth quarter, 46 percent more than in the third quarter. The lines allow high-speed Internet access through regular telephone wires.

The 540,000 lines in service at the end of the year represent a rise of more than 500 percent over the number in service at the end of 1999, it said. BACK TO TOP Fourth-quarter revenue was $6.26 billion, down from $7.70 billion in the fourth quarter of 1999.

DuPont edged Wall Street expectations of 46 cents per share, according to First Call/Thomson Financial.

Raw materials costs soared by $1.3 billion during the year, mostly on the price of crude oil. Like other chemical manufacturers, DuPont is heavily dependent on oil, natural gas and other petroleum byproducts.

The cost of raw materials soared by $250 million in the fourth quarter alone, the company said.

"Our employees worldwide have done a tremendous job countering some of the worst conditions in our industry in a decade," said Charles O. Holliday Jr., DuPont chairman and chief executive. "Six segments had higher revenue and five improved earnings vs. last year, a very solid performance."

An 11 percent slump in U.S. sales was partly offset by a 2 percent gain in overseas sales, but overall sales volume saw a decline of about 5 percent in the quarter.

A strong overseas dollar also hurt the company's profits, with the weak euro reducing quarterly earnings by 5 cents a share and by 15 cents a share for the year, the company said.

For the year, DuPont earned $2.31 billion, or $2.21 per share, on revenue of $29.27 billion. In the year-ago period, DuPont earned $7.69 billion, or $7.08 billion, on revenue of $27.89 billion.

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Pfizer's Profits Rise on Strong Viagra Sales

Pfizer, the No. 1 U.S. drugmaker, reported today a 20 percent gain in fourth-quarter operating earnings, meeting Wall Street expectations, helped by sales of its blockbuster anti-cholesterol drug, Lipitor, and arthritis treatment Celebrex.

The New York-based company, also known for its anti-impotence pill Viagra, reported earnings of $1.76 billion, or 27 cents per diluted share, excluding the impact of special items and merger-related costs. In the same year-ago period, the company earned $1.47 billion, or 23 cents per share.

Analysts, on average, had estimated the drugmaker, which acquired New Jersey drug maker Warner-Lambert Co. last year along with Warner-Lambert's crown jewel, Lipitor, would earn 27 cents a share.

After special items and merger related costs, quarterly net income fell 3 percent to $1.42 billion compared with $1.27 billion in the year ago period. Earnings per share after items remained flat at 23 cents.

"With remarkable speed and focus, we have rapidly integrated the industry's two fastest-growing companies while more than doubling our initially forecasted year-2000 merger savings to about $430 million," said Chairman William Steere Jr.

Looking at 2001, Pfizer forecast earnings per share of $1.27 or better, excluding items, and said it plans to spend $5 billion on research and development. Pfizer said it sees 25 percent earnings growth through 2002, and double-digit recorded revenue growth in 2001.

The company said fourth-quarter revenues with special items rose 8 percent to $8.1 billion compared with $7.5 billion a year ago. Reported global sales of prescription drugs in the United States rose 19 percent to $4.2 billion, excluding the impact of foreign exchange and the company's withdrawal last year of diabetes drug Rezulin following safety concerns.

Outside the U.S., pharmaceutical sales jumped 20 percent to $2.3 billion in the quarter on the same basis.

Shares of Pfizer have flourished in 2000 along with those of the rest of the pharmaceutical industry, as investors took money out of slumping technology stocks in favor of defensive areas like the drugs sector — an area seen as safe haven because the economy does not affect how many pills people take.

The stock has outperformed its peers on the American Stock Exchange Pharmaceutical Index by nearly 5 percent over the last 52 weeks, and out-paced the benchmark Standard & Poor's 500 index by about 20 percent over that period.

Pfizer said its so-called "alliance" revenues from combined sales of two drugs it co-markets with other companies — Pharmacia Corp.'s Celebrex and Eisai Inc.'s Alzheimer's disease treatment Aricept — soared 63 percent to $348 million in the quarter.

Global sales of Lipitor jumped 26 percent to $1.43 billion and grew 33 percent in the year to $5 billion — reaching the company's previously stated goal.

Global Viagra sales in the period rose 37 percent to $380 million in the fourth quarter.

Regarding its acquisition of Warner-Lambert, Pfizer said it achieved $430 million in savings in 2000 and sees merger savings in 2001 of $1.2 billion, growing to at least $1.6 billion in 2002. BACK TO TOP

International Paper's Earnings Fall 36 Percent

International Paper, the world's largest paper and forest products company, said today its fourth-quarter earnings fell 36 percent due to rising energy costs and the slowing U.S. economy.

The company said net earnings for the quarter, before special items, were $145 million, or 28 cents per share, compared with $227 million, or 55 cents per share in the 1999 quarter.

After special items, including pre-tax, one-time charges for Union Camp and Champion merger-related costs, IP posted a loss of 85 cents for the fourth quarter.

After IP warned a month ago of an earnings shortfall, the average consensus of analysts polled by First Call/Thomson Financial was lowered from 44 cents to 30 cents per share.

Fourth-quarter net sales were $7.2 billion, compared with $6.3 billion for the same period in 1999.

John Dillon, chairman and chief executive officer, said the slowing economy and rising energy costs occurred when the weather turns colder and demand drops for lumber and other wood products.

"As demand fell, we maintained our commitment to keep our production in line with customer orders, which negatively impacted overall sales," he said. "While many of these factors are continuing into the opening months of 2001, the steps we are taking will lead to a stronger International Paper for the long term."

International Paper said it has nearly completed its previously announced plan to adjust capacity as the wood products industry continues to battle lower demand and higher energy costs.

The company has closed its Mobile, Ala. and Camden, Ark. mills, and completed the downsizing of the Courtland, Ala. mill. The closure of the Lockhaven, Pa. mill is proceeding on schedule, IP said.

It also said asset sales are progressing rapidly as International Paper focuses on its three core businesses — paper, packaging and forest products. The company has increased its asset sales target to $5 billion, including timberlands, to be completed by the end of 2001.

It said it aims to reduce capital spending to $1.2 billion in the year 2001, which is about 60 percent of depreciation and amortization. The capital expenditure program in 2001 is 20 percent below the $1.4 billion spent in the year 2000, it said.

International Paper makes paper, packaging and wood and building products, as well as being the largest private forest landowner in the world. It has operations in nearly 50 countries, employs more than 117,000 people and exports its products to more than 130 nations. BACK TO TOP

Mad Cow Takes a Bite out of McDonald's

Fast food giant McDonald's said today its fourth-quarter earnings fell 7 percent as an outbreak of mad cow disease in Europe pushed the region's sales down 10 percent and threatened to weaken the company's first quarter results.

Net income at the Oak Brook, Ill.-based hamburger maker, the largest restaurant company in the world, fell to $452 million, or 34 cents a share, from $486.2 million, or 35 cents a share, a year earlier. McDonald's was expected to earn 35 cents a share, according to a recent poll of analysts by First Call/Thomson Financial.

McDonald's, which operates nearly 5,500 restaurants in Europe, its second-largest market behind the United States, has since November seen sales erode amid an outbreak of mad cow disease, or bovine spongiform encephalopathy, on the continent.

BSE is a chronic degenerative disease affecting the central nervous system of cattle and is believed to be contracted through feed containing animal by-products. It has been linked to a similar brain-wasting disease in humans.

CEO Jack Greenberg said in a statement that he expects a difficult first quarter of 2001 due to continued mad cow concerns, tough comparisons from last year, and an extra trading day in 2000.

"We expect the first quarter to be very challenging, due to outstanding results and an extra trading day in 2000, and continuing consumer confidence issues about European beef," he said.

The company has been battling public fears with stepped up advertising and greater promotion of non-beef products.

Sales to Europe, the company's second-largest market behind the U.S., fell 10 percent in the quarter to $2.21 billion from $2.45 billion one year ago. Operating income fell 17 percent to $267.3 million from $322.2 million.

"Europe got hit pretty hard," said Bear Stearns analyst Joe Buckley, who in June lowered his rating on McDonald's shares to neutral due to broader international concerns, including fluctuations in the euro. "The problem with mad cow is that it is an unknown. No one knows how long these concerns last."

Systemwide sales, which include sales from restaurants owned by franchises and those owned by the company, rose to $9.92 billion from $9.75 billion a year ago.

Sales in the United States, McDonald's largest market, rose 3 percent to $4.82 billion, from $4.68 billion one year ago. Operating income rose 14 percent to $385.3 million from $338.9 million. Sales in Asia Pacific, McDonald's third-largest market, rose 3 percent to $1.75 billion from $1.70 billion a year ago.

"Despite a number of operating challenges, our worldwide comparable sales were positive and systemwide sales increased seven percent in constant currencies for the year," Greenberg said.

The company plans to add about 1,700 restaurants in 2001, he said. The company said that 2001 per share earnings were expected to grow between 10 percent to 13 percent, excluding the impact of foreign currency translation.

In the year, it plans to buy back about $1.2 billion in stock, the remainder of a three-year $4.5 billion plan. In 2000, it purchased $2.0 billion worth. BACK TO TOP

Qwest Tops Wall Street

Telephone and data services provider Qwest Communications today posted a better-than-expected 44 percent jump in fourth-quarter profits, propelled by robust growth in Internet, data and wireless telephone revenues.

Qwest, which acquired regional phone company U S West Inc. last year in a $36 billion deal, said in a statement it was on track to meet its targets for 2001 revenues and earnings before interest, taxes, depreciation and amortization, or EBITDA, a key measure of a company's performance.

Andrew Hamerling, an analyst with Banc of America, called the results "terrific."

"Everything is as expected," he said. "Overall I'd say it's a great quarter."

The Denver-based company said pro forma profits excluding one-time items rose to $270 million, or 16 cents a diluted share, compared with $188 million, or 11 cents a share, a year ago.

The results beat Wall Street expectations of 14 cents a share, according to research firm First Call/Thomson Financial.

"With the initial integration of the [U S West] merger successfully completed, we are on track to meet our expected growth rates," Chairman and Chief Executive Joseph Nacchio said in a statement.

Qwest said revenues rose 9.9 percent to $5.02 billion. The increase was driven by growth of almost 40 percent in Internet and data services.

Wireless revenues rose 90 percent to almost $150 million. The number of wireless customers increased to more than 805,000, above the company's target of 800,000 for the end of 2000.

Fourth-quarter EBITDA was up 19.7 percent, to $1.99 billion.

Shares of Qwest have fallen about 10 percent amid sharp declines throughout the telecom sector over the past year. Its stock has underperformed the Standard & Poor's 500 index by about 4 percent.

The company also said it expected to double the number of customers for its digital subscriber line (DSL) service, which provides high-speed Internet access over conventional phone lines, to 500,000 by the end of the year.

Qwest said it ended 2000 with more than 255,000 DSL customers, above its target of 250,000.

It also said it expected to file with the Federal Communications Commission to enter long-distance service in several states by the end of 2001.

It expects to apply to reenter long-distance business in one of the states in its local service area by the summer.

Tavis McCourt, an analyst with Morgan Keegan & Co. Inc. in Memphis, Tenn., said entry into long-distance markets was vital for Qwest's growth.

"Certainly they are going to be as aggressive as possible to make that a reality," he said.

Qwest reiterated that it expected 2001 revenues to be in the range of $21.3 billion to $21.7 billion and EBITDA to be $8.5 billion to $8.7 billion.

Hamerling, the Banc of America analyst, said the biggest challenge facing Qwest was to meet its target of 20 percent long-term EBITDA growth.

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Whirlpool Reiterates Job Cuts

Appliance maker Whirlpool met Wall Street's lowered fourth-quarter earnings expectations and affirmed its global restructuring plan will mean up to 6,000 jobs cut in the coming year.

The company said today it expects to trim more than 2,000 jobs worldwide as part of the restructuring's first phase, with more details to be announced within two weeks.

All told, the company shake-up — which will pare 10 percent of Whirlpool's 60,000-member work force — will result in pre-tax charges of $300 million to $350 million, with annualized savings of $225 million to $250 million, the company said.

"This will be a year of challenge and opportunity," David R. Whitwam, Whirlpool's chairman and chief executive, said in a statement. "We believe that our strong brands, global platform, innovative products and consumer focus — combined with our restructuring efforts and the associated lower cost structure — will produce a strong operational performance and solid financial results in 2001."

Whirlpool said its fourth-quarter net earnings were $67 million, or $1 per share, compared with $113 million, or $1.51 per share, during the year-ago period.

Analysts surveyed by First Call/Thomson Financial were expecting 99 cents per share, having lowered their estimate from $1.42 a share after Whirlpool issued an earnings warning last month. At the time, Whirlpool blamed intensified price competition, rising material costs, and slowing or declining demand.

The company said sales during the three months ended Dec. 31 were $2.58 billion, down 4 percent from $2.69 billion in the year-ago period.

It added that it expects its first-quarter performance, excluding charges, to be in line with fourth-quarter earnings of $1 per share. Analysts surveyed by First Call/Thomson Financial had been expecting $1.02 per share.

The North American appliance industry has been expected to be down 7 percent to 8 percent in the fourth quarter versus the same period in 1999, Whirlpool said last month. Earlier company estimates forecast a fourth-quarter decline in industry shipments of 2 percent to 3 percent.

Whirlpool has said its restructuring involves a reduction and reconfiguration of global operations, including the closure of some plants.

For the year, Whirlpool earned $367 million, or $5.20 per share, on sales of $10.33 billion. In the previous year, the company earned $347 million, or $4.56 per share, on sales of $10.51 billion.

Whirlpool is the world's largest manufacturer and marketer of major home appliances. It sells products under 11 brand names in more than 170 countries. The Benton Harbor-based company has major operations in seven states — Arkansas, Indiana, Michigan, Mississippi, Ohio, Oklahoma and Tennessee — and 12 countries, including Canada and Mexico.

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