AT&T Q4 Earnings Rise Despite Lower Revenue

More than half of the latest profit came from a tax benefit related to last fall's huge writedown in the value of AT&T's long-distance phone network.

January 21, 2005

3 Min Read
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NEW YORK (AP) -- AT&T Corp. closed out another rough year with a strong fourth quarter driven by aggressive cost-cutting and restructuring efforts, but the telephone company issued a dour forecast for the year ahead.

Earnings for the final three months of 2004 nearly doubled to $625 million, or 78 cents per share. In the same period in 2003, AT&T earned $340 million, 43 cents per share.

More than half of the latest profit came from a tax benefit related to last fall's huge writedown in the value of AT&T's long-distance phone network.

That network became a far less valuable asset after a series of regulatory defeats which prompted AT&T to halt all marketing and customer retention efforts for traditional local and long-distance phone service.

As a result of that retreat, the consumer customer base fell sharply again in the fourth quarter, sliding by about 2 million to a year-end total of 24 million.But the withdrawal also has produced significant savings on marketing costs, which totaled $700 million per year before AT&T pulled the plug.

New advertising costs for the Internet-based phone service AT&T launched last March amount to small fraction of the old marketing budget. AT&T declined again Thursday to offer any tally of how many consumers and businesses have signed up for the new service, though executives said that should not be taken as a sign of poor performance.

The latest quarter also reflected cost savings from the elimination of more than 14,000 jobs, or nearly a quarter of the company's work force, during the year.

The final tally of job cuts exceeded AT&T's prior estimate in October that the work force would shrink by ``more than 20 percent.''

``I would expect further headcount reductions in 2005,'' but not nearly as many as those made in 2004, Chief Financial Officer Thomas Horton said in a conference call after the report.Some of this year's cuts will be made by closing customer call-in centers as AT&T continues to resize its operations for the shrinking consumer operation - once a $25 billion a year business with 60 million customers.

The savings on labor and marketing helped offset another dismal quarter on the revenue side.

Fourth-quarter sales totaled $7.27 billion, down 10.2 percent from the year-ago tally of $8.10 billion as fierce price competition and last year's unexpected regulatory changes continued to erode the company's telephone and data businesses.

In the latest quarter, the consumer services unit saw revenues decline 17.9 percent to $1.8 billion. The business services division generated $5.45 billion of the revenues, down 7.4 percent from a year earlier.

Some of the fourth-quarter results exceeded Wall Street estimates, but AT&T's shares fell 44 cents, or 2.4 percent, to close at $18.07 in Thursday trading on the New York Stock Exchange.Investors also may have been discouraged by the company's forecast for 2005, which offered little assurance that the worst is over. Annual revenues are expected to shrink from 15 percent to 18 percent to between $25 billion and $26 billion, the company estimated Thursday.

And with rivals like MCI Corp. and the regional Bells still pricing aggressively in a bid to chip away at AT&T's large base of corporate clients, the company plans to remain competitive with prices.

``Do we need to continue to have the best value proposition, and be pricing in a way to keep our customer base in an erratic market place? Absolutely,'' AT&T President William Hannigan said in an interview, noting that the rate of decline in revenues has slowed over the past two quarters.

``Do we feel better about the market than a year ago? Absolutely. But it's hard to call a trend in this business. We've seen false positives before,'' said Hannigan. ``I don't know that the pricing pressure is going to go away. We still have too many competitors and too much capacity.''

For all of 2004, the company swung to a net loss $6.11 billion, or $7.68 per share, including $12.8 billion in charges for the asset writedowns and other restructuring moves. In 2003, AT&T earned $1.87 billion, or $2.36 per share.Full-year revenues declined 11.6 percent to $30.54 billion compared with $34.53 billion in 2003.

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