Earnings Reports for Jan. 26

Ericsson Plans to Exit Mobile Phone Production Business

Ericsson, the world's third-largest mobile phone maker, is getting out of the business of making phone handsets so it can focus on its core business of developing wireless technology and network equipment.

Ericsson, which disclosed the plan today as it reported a 63 percent plunge in fourth-quarter earnings, is selling its handset factories to an outside manufacturer, but will continue to sell its own brand of phones produced by those plants.

The move out of handset production had been widely expected as Ericsson has long suffered weakness in that business. Analysts said the move will strengthen the company's position as a leading force in the industry's move toward advanced wireless technologies that will enable mobile devices to connect with the Internet.

"They also get rid of the parts that have brought the Ericsson shares downstream the past years," said Paer Johansson, senior wireless executive with Noblestar, a Swedish consulting company that works with Ericsson. "They can totally focus on the systems side and developing applications as well as infrastructure and by that be a more competitive technology supplier."

Ericsson said it had signed a deal under which Singapore-based Flextronics International will take over its mobile phone production facilities in Brazil, Malaysia, Sweden, Britain and parts of a U.S. plant in Virginia.

The deal with Flextronics, which will include the transfer of 4,200 employees and the layoff of about 700 others, is to take effect April 1, subject to final agreements.

It also signed an agreement to have the Taiwanese electronic manufacturer GVC handle some of its product development and production, complementing its partnership with Arima of Taiwan on entry-level phones.

Chief executive Kurt Hellstroem said the moves are designed to save $1.6 billion in costs a year starting next year.

Ericsson's fourth-quarter net income dropped to $239 million, or 3 cents per share.

Its consumer product division's profit fell $1.6 billion.

The company blamed delivery problems and an inadequate entry-level product mix that hit sales and gross margins, as well as an aggressive restructuring program for the phone operations that brought additional costs.

For the year, Ericsson earned $2.2 billion. Net sales rose 27 percent to $29 billion.

Ericsson, which has more than 105,000 employees in 140 countries, said it expected continued strong growth for systems and lower sales for phones. BACK TO TOP

Georgia-Pacific Reports Fourth-quarter Loss

Paper and tissue giant Georgia-Pacific posted a fourth-quarter loss today as a result of huge special charges for a mill closure and a major acquisition as well as lower demand for its products.

The maker of Dixie Cups, Northern Quilted toilet paper and Brawny kitchen rolls reported a net loss of $187 million or 98 cents per share, compared with income of $175 million or $1.00 a share, a year earlier.

Even before the charges, the results fell far short of Wall Street's already lowered expectations.

The company said in a statement that it took after-tax charges of $184 million, or 96 cents a share, primarily for a write-down of the Georgia-Pacific Tissue assets, which is being divested, and the closure of a paper mill at Kalamazoo, Mich.

Excluding the charge, it said, it lost $3 million, or 2 cents a share, for the quarter.

Georgia-Pacific Group, the manufacturing and distribution business of Georgia-Pacific, said the results also include the impact of the $7.3 billion purchase of rival Fort James Corp. and related interest on acquisition debt that reduced net income by $23 million, or 12 cents a share.

Last month, Georgia-Pacific, which also sells wood products, said fourth-quarter operating profits would fall "substantially" below Wall Street estimates, partly due to weak demand and prices for building materials.

Before the shortfall warning, analysts polled by First Call/Thomson Financial had on average expected earnings of 58 cents a share. Afterward, that was lowered to 32 cents.

Net sales for the quarter rose to $5.52 billion from $5.31 billion.

"Despite our efforts to match production with demand during the fourth quarter, we were unable to overcome the effects of the slowing U.S. economy and higher energy costs as well as overwhelming declines in building products prices," said Georgia-Pacific Chairman and Chief Executive A.D. "Pete" Correll.

"Late in the fourth quarter, we began to experience weak market conditions that could persist for the next several months," he said. "Looking ahead, we expect market conditions to remain depressed in nearly all our businesses with the exception of consumer products, which we believe will weather the current economic downturn."

Georgia-Pacific is a leading manufacturer of tissue, pulp, paper and building products and related chemicals. With annual sales of approximately $27 billion, the company employs more than 85,000 people at 600 locations in North America and Europe. BACK TO TOP

Restructuring Shaves Gillette's Profits

Shaving products giant Gillette posted a loss of $85 million in the fourth quarter due to a restructuring charge, but its profit before onetime items beat Wall Street expectations.

The company lost 8 cents a share in the October-December period due to a restructuring charge of $430 million, or 41 cents a share, for previously disclosed plans to cut 2,700 jobs and to close some factories.

It earned $339 million, or 32 cents per share, a year earlier.

But it said earnings before the onetime charge rose 3 percent to $345 million, or 33 cents per share, in the latest period. That was slightly better than the 32 cents expected by analysts surveyed by First Call/Thomson Financial.

Sales rose to $2.82 billion for the quarter from $2.8 billion a year earlier.

The company has a strong portfolio of brands, but has seen mostly disappointing earnings reports in recent years.

As part of its plan to boost profit growth, the company last month announced a restructuring program, saying it planned to eliminate about 8 percent of its work force and close eight factories and 13 distribution centers.

Earlier this week, the company announced that James M. Kilts would take over as chairman and chief executive, replacing DeGraan, who had been serving as acting CEO. Kilts, who engineered a dramatic turnaround at Nabisco, will be the fourth CEO in two years.

For the year, the company earned $392 million, or 37 cents per share, compared with $1.3 billion, or $1.14 per share, in 1999. Sales rose to $9.3 billion from $9.15 billion in 1999.

Edward F. DeGraan, president and chief operating officer, said the company made progress in reducing working capital requirements and "addressing our underperforming product lines."

The company makes and sells a wide range of products, but is known most notably for its razors and toiletry products for both men and women. It also produces alkaline batteries, hair products, toothbrushes, and small household appliances. BACK TO TOP

Honeywell's Net Income Drops by 10 Percent

High-tech manufacturer Honeywell International reported today a 10 percent drop in fourth-quarter income before special charges, due to higher materials and overhead costs and business decisions related to its pending merger with General Electric.

The maker of aerospace, automotive and electronic products posted income before charges of $569 million, or 70 cents per share, in its October-December quarter. That just missed the forecast of analysts surveyed by First Call/Thompson Financial, who were expecting earnings of 71 cents per share.

In the year-ago quarter, Morris Township-based Honeywell reported income of $630 million, or 78 cents per share, after adjustments for several special charges.

Revenues for the quarter were up nearly 5 percent to $6.45 billion from $6.16 billion.

Honeywell spokesman Tom Crane said earnings were reduced somewhat because the company had halted some small divestitures and "a lot of the business activities that we were in the middle of in the fourth quarter, primarily because of the GE merger."

Including one-time charges of $410 million, or $315 million after taxes, fourth-quarter net income was $254 million, or 39 cents per share. The charges include costs of ongoing environmental cleanups, write-downs of factory equipment that has depreciated, been sold or is no longer in use, and severance and other charges related to the 1999 merger of AlliedSignal and Honeywell.

Including charges, Honeywell earned $7 million, or 1 cents a share, in the fourth quarter a year ago.

For all of 2000, Honeywell earned $1.66 billion, or $2.05 per share, up 7.7 percent from net income of $1.54 billion, or $1.90 per share, a year earlier.

Revenues for the year rose 5.4 percent, to $25.02 billion from $23.74 billion.

"While our overall performance in 2000 was below expectations, we saw signs of encouragement in the second half of 2000, with significant contract wins in both aerospace and industrial control" divisions, said Michael R. Bonsignore, Honeywell's chairman and chief executive Officer.

Honeywell makes equipment for aerospace systems, power generation, transportation and factory automation, as well as specialty chemicals, plastics, fibers and other industrial materials. It was created in December 1999 when Minneapolis-based Honeywell was acquired by Morris Township-based AlliedSignal.

In October, Honeywell agreed to be acquired by General Electric for $45 billion in stock, although the value of the deal has declined as GE's stock price has slumped. Crane said the merger is still scheduled to be completed by the end of this quarter.

GE, based in Fairfield, Conn., is a diversified company that produces power plant parts, aircraft engines, appliances and owns the NBC television network. BACK TO TOP

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.


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.