Earnings Reports for Jan. 29

AT&T's Profits Fall 51 Percent

Telephone and cable television giant AT&T posted today a 51 percent drop in fourth-quarter profits due to intense competition and falling prices in the long-distance telephone market, and said it expects consumer revenues to continue to shrink.

Separately, Rick Roscitt, head of AT&T's Business Services unit, said he will become chairman and chief executive of equipment maker ADC Telecommunications Inc. Roscitt's departure marks the latest high-level executive to leave the company in the past three years.

AT&T, which plans to break into four separately traded companies, said fourth-quarter profits, excluding one-time items, fell to $978 million, or 26 cents a share, from $1.7 billion, or 53 cents a share, a year ago. On a per-share basis, the fall was 51 percent. On the basis of millions of dollars, the drop was 42 percent.

The results matched Wall Street's reduced expectations, according to research firm First Call/Thomson Financial. AT&T slashed its growth outlook several times last year, citing weakness in the long-distance telephone market.

Including one-time items, AT&T posted a net loss of $1.7 billion, or 45 cents a share, in the quarter, compared with a profit of $1.15 billion, or 36 cents a share, a year ago.

Fourth-quarter revenue increased 3 percent to $16.9 billion. Operating expenses jumped 52 percent to $21.2 billion.

Shares of New York-based AT&T have fallen 53 percent over the past year, underperforming the Standard & Poor's 500 Index by 49 percent. AT&T last month cut its dividend for the first time in the company's more than 100-year history, slashing the payout by 83 percent.

Excluding the planned exchange offer for its wireless unit, AT&T said it expects first-quarter earnings, excluding other income, to be in the range of 4 cents to 7 cents a share. AT&T said it was not able to accurately estimate full-year revenue, earnings, and cash-flow for the company as a whole due to the pending restructuring.

"We were expecting a bad quarter and a bad year in 2001 and it's going to be worse than we expected," said Anna-Maria Kovacs, a Boston analyst with the Janney Montgomery Scott brokerage.

Kovacs, who has a "sell" rating on AT&T, said AT&T's reduced forecast for 2001 EBITDA (earnings before interest, taxes, depreciation and amortization) for business services and crumbling revenues from consumer long-distance were key reasons for her outlook.

Under AT&T's restructuring plan, which was announced in October, the company will split its major units — consumer, business, broadband, and wireless — into separately traded companies.

The move dismantles nearly three years of bold acquisitions and reverses the company's strategy to become an "all distance" communications company that sold packages of local, long-distance, wireless telephone and Internet access services.

In the fourth-quarter, AT&T's core consumer revenues fell 14.7 percent to $4.3 billion. For 2001, the consumer unit's pro forma revenues should fall by mid- to high-teen rates due to continued customer migration to lower priced calling plans and prepaid card products, competition from more Baby Bells entering the long distance market, and a switch by customers to wireless telephones.

AT&T's fourth-quarter business revenues increased 0.7 percent to $7.1 billion. The business services unit should post a "slight revenue decline" in the first quarter, and flat revenues for the full year 2001, the company said. It cited continued long-distance pricing pressure, volume erosion due to technology substitution, and changes in its product mix.

Its wireless unit's fourth-quarter revenues increased 39.1 percent to $3.0 billion as it added 865,000 new subscribers. It had 15.2 million subscribers at the end of 2000, an increase of 58.5 percent compared with a year-ago.

The wireless unit expects service revenues to grow at the high-end of the 30 — 35 percent range for the full year 2001. Growth in earnings before interest, taxes, depreciation and amortization (EBITDA), excluding other income, is expected to be in the mid-60 percent range.

Wireless subscribers additions will grow by mid- to high- 20-percent rates in the first quarter. Full-year wireless subscriber growth is expected to be around 20 percent.

The broadband unit, which includes AT&T's recently acquired cable television businesses, saw a 11.8 percent increase in fourth-quarter revenues. BACK TO TOP

Higher Energy Costs Lower Union Carbide's Results

Chemicals manufacturer Union Carbide reported today a fourth-quarter loss, blaming the slowing U.S. economy and the high costs of energy and raw materials.

The Danbury, Conn.-based company, which has agreed to be acquired by Dow Chemical, said it lost $94 million, or 70 cents a share in the quarter, compared with earnings of $94 million, or 68 cents a share, in the corresponding period a year earlier.

Excluding a charge of $31 million, or 17 cents a share, related to a partnership with Honeywell International Inc., the company said it lost 53 cents per share for the quarter.

Wall Street analysts polled by First Call/Thomson Financial had expected the company to lose 53 cents in the quarter, after they lowered their estimates earlier this month when Union Carbide issued an earnings warning.

Before the warning, Wall Street had been expecting a more modest loss of 20 cents a share.

Revenues rose to $1.598 billion compared with $1.552 billion for last year's fourth quarter.

"Carbide and others are being negatively impacted by a volatile energy market," said William Joyce, Union Carbide's chairman and chief executive.

"At the same time, product selling prices have not been keeping pace with the high cost of natural gas and natural gas liquids," he added.

Joyce said raw material and energy costs rose to unprecedented levels by the end of the quarter, while average selling prices were lower than in the prior quarter. The negative impact on earnings was primarily in its North American-based basic chemicals and polymers businesses.

He noted that natural gas prices more than quadrupled from December 1999 to the end of December 2000, while the price for ethane nearly doubled and the cost of propane increased nearly 40 percent in the same period.

Union Carbide is the latest in a string of chemical companies to report that high energy costs took a bite out of fourth-quarter earnings, joining DuPont Co., Dow, and others.

Meanwhile, Union Carbide and Dow are waiting for regulatory approval for their merger, which they had hoped to close by this time a year ago. Mike Parker, Dow's president and chief executive officer, said last week that he remained committed to the transaction, describing it as a "very good deal."

The companies have not given a new target date for closing the deal.

For the full year 2000, Union Carbide posted net income of $162 million, or $1.18 per diluted share. Along with the 17 cents a share charge related to its partnership, full-year results included gains of 48 cents a share. Prior year net income was $291 million, or $2.13 per diluted share. BACK TO TOP

Xerox Posts Second Straight Quarterly Loss

Struggling copier giant Xerox reported today its second-straight quarterly loss and said it will cut 4,000 jobs in the first quarter, about 4 percent of its workforce, with more job cuts planned later this year in an effort to get back on track.

Stamford, Conn.-based Xerox, which warned on Dec. 21 that the fourth quarter was looking even worse than the third quarter — when it posted its first quarterly loss in 16 years — said its loss for the fourth quarter was $198 million, or 31 cents per diluted share, compared to earnings of $294 million, or 41 cents per share, in the year-earlier period.

Analysts on average were forecasting a loss of 30 cents, according to consensus estimates compiled by First Call/Thomson Financial.

Xerox, which has promised to sell up to $4 billion in assets and cut $1 billion in costs this year in a bid to improve its finances, said fourth-quarter revenue fell 13 percent from $5.4 billion in the year-ago quarter.

Xerox said it was making "significant" progress with its cost-cutting initiatives, and that it will cut more jobs later this year. The company had about 92,000 employees around the world at the end of last year.

"We are aggressively implementing our cost-reduction plans, which will yield more than $1 billion in savings by the end of 2001," said Anne M. Mulcahy, Xerox president and chief operating officer.

The company had indicated previously that job cuts were in the offing but had not specified any numbers.

A venerable brand name whose roots date back to the 1940s, Xerox has struggled as it seeks to transform itself from a maker of free-standing copiers to a manufacturer of digital printers connected to computer networks.

Xerox shares have lost about 72 percent of their value in the last 12 months, as the company has been battered by strategic missteps, billing problems, bad debts from customers, and increased competition for its most profitable, high-end copiers from Japan's Canon and other rivals.

The stock has also been pummeled by investor fears of a cash crunch, though Xerox has continually said it has adequate liquidity to fund daily operations.

"Xerox strengthened its cash position in the fourth quarter and ended the year with more than $1.7 billion in cash. Operational improvements contributed to a reduction of more than $400 million in inventory in the quarter," said Paul Allaire, Xerox chairman and chief executive officer. "Our prime objective of cash generation is being realized." BACK TO TOP 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.


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.


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.