BellSouth reports flat first-quarter earnings

BellSouth today reported net income of $1.02 billion for first-quarter 2002, nearly identical to the year ago quarter. Normalized earnings per share for the quarter were 54 cents, the same as first-quarter 2001. This performance was under the 56-cents-per-share estimate of analysts polled by Thompson Financial/First Call.

The normalized EPS included five special items, including a 45-cents-per-share gain from the restructuring of BellSouth's relationship with Dutch telecommunications provider Royal KPN. BellSouth exchanged its 22.51 percent stake in German mobile phone operator E-Plus for 234.7 million shares of KPN, which it then sold on March 19.

In addition, BellSouth took an 8-cents-per-share charge for the further impairment of an equity investment in Qwest Communications International, as well as for losses on open market sales of Qwest common stock. An additional 11-cents-per-share charge was taken by the carrier related to the impact of currency devaluations in Argentina and Venezuela on U.S. dollar-denominated debt. In contrast, foreign currency losses in first-quarter 2001 were two cents per share.

BellSouth also took a 14-cents-per-share charge for the impairment on shareholder loans to its Brazilian equity investments, as well as the recognition of a guarantee on a portion of debt associated with those operations. Finally, BellSouth took a 35-cents-per-share charge as a result of discovering that the unbilled receivable balance at its advertising and publishing subsidiary was overstated. To adjust the balance, the carrier reported a charge to operations of $163 million for the quarter. Without the special items, EPS for the quarter would have been 61 cents per share.

Operating revenues for the quarter were $7.08 billion, down slightly from the $7.16 billion posted in first-quarter 2001. Earnings before interest taxes depreciation and amortization (EBITDA) were $3.19 billion, a slight decline from the $3.22 billion notched in the year-ago quarter. Capital expenditures for the quarter were just over $1 billion, a 40.5% reduction from the $1.7 billion spent in first-quarter 2001. Total employees at the carrier as of March 31, 2002 totaled about 86,000, a 20% decline year over year.

BellSouth blamed weak economic conditions in both its North American and Latin American markets for the sluggish results. The company said slowing demand for services has been exacerbated by the failures of interchange and competitive carriers, which negatively impacted first-quarter 2002 earnings by two cents per share.

The carrier's communications group reported data service revenues of $1.12 billion for the quarter, a 15% increase year over year. Bellsouth said this performance would have been better if not for weak sales in wholesale data transport services to long-distance companies and competitive carriers; this segment grew by just 7% during the quarter. In contrast, all other data service revenues grew by 23%.

In addition, BellSouth said it added 108,000 digital subscriber line (DSL) customers during the quarter, for a total of 729,000 retail and wholesale DSL customers as of March 31, an annual growth rate of 141%.

Cingular Wireless, in which BellSouth owns a 40% share, posted revenues during the quarter of $1.4 billion an 8.2% increase year over year. BellSouth reported that its share of Cingular’s operating income was $266 million for the quarter, a 29.8% increase compared with first-quarter 2001. EBITDA margin expanded by 160 basis points to 33.6%, year over year. During the quarter, Cingular added 533,000 net digital postpaid contract customers and ended the quarter with 21.8 million total customers, an annual growth rate of 6.3%.

The carrier adjusted full-year 2002 guidance, as it anticipates continued economic weakness and resultant lower sector demand. Bellsouth said total operating revenue growth would be about 1%, normalized earnings per share would range from $2.36 to $2.43, capital expenditures (excluding Cingular) would range from $4.2 billion to $4.4 billion, and data revenue would show growth in the "mid teens." The carrier predicted it would have 1.1 million DSL customers by December 31 2002.