AT&T gouges dividend, lowers 4Q numbers

If AT&T shareholders have their way, CEO C. Michael Armstrong might find a lump of coal in his stocking on Christmas morning.

That’s because the announcement that AT&T is cutting its dividend and ratcheting down fourth-quarter earnings sunk the company’s stock today by more than 10% as of 2:30 p.m. Eastern time. AT&T’s shares have fallen more than 70% from their 52-week high of about $60.75 in March.

The huge 83% dividend reduction—the first in the company’s 100-year history-was made to bring AT&T’s dividend policy in line with that of its competitors and to free up cash so that AT&T can service its $62 billion debt load.

“While we did not make this decision lightly, we believe it is necessary and in the best long-term interests of our shareowners,” Armstrong said in a statement.

AT&T also announced that its fourth-quarter revenue growth would be lower than previously projected because of pricing pressures in the long-distance market and the inability of the AT&T Solutions unit to close some large network-management contracts.

AT&T said it expects overall top-line revenue to grow 2.5% to 3% in the fourth quarter, compared to previous guidance of 4% to 5%. Revenue from the Business Services unit, which includes Solutions, is expected to grow about 1% compared to the 2.5% previously forecast. Additionally, Consumer Services revenue is expected to decline at a faster rate—in the mid-teens-compared to the nearly 11% decline previously estimated. AT&T said slower-than-expected industry growth and increased technology substitution, such as wireless phones and e-mail, were the culprits.

“We think the incremental consumer problems will impact both [WorldCom] and [Sprint], with perhaps a similar severity,” said a report by Frank Governali of Goldman Sachs. “The business problems probably won’t be quite as bad, since they should only be exposed to the pricing pressure.”

AT&T said the fourth-quarter performance in Consumer and Business Services likely would impact some of the outlook for those businesses in 2001, but it won’t give projections until its fourth-quarter earnings call.

AT&T also cut earnings targets for the fourth quarter. Operational earnings per share will be in the range of 26¢ to 28¢, compared to the 29¢ to 33¢ previously projected. Operational cash earnings per share is expected to be in the range of 45¢ to 47¢, compared to the previous forecast of 49¢ to 52¢.

The new dividend of 3.75¢ per share is payable Feb. 1, 2001, to shareowners of record on Dec. 29, 2000. The previous quarterly dividend was 22¢ per share.

When AT&T splits itself as part of its restructuring, AT&T Consumer is expected to allocate a greater portion of its earnings to dividends. AT&T's other businesses are expected to focus primarily on growth by reinvesting more of their profits over time. Neither AT&T Wireless nor AT&T Broadband are expected to pay a dividend in the foreseeable future.