SBC Q2 earnings beat the Street

SBC Communications reported an 8% increase in earnings per share for the second quarter, but said demand for data services is under pressure from the weak economy.

Before one-time items, SBC posted profits of 2.1 billion, or 61¢ per share, compared with $1.9 billion, or 56¢ per share, in the year-ago quarter. This performance beat analysts’ average expectations by 4¢ per share.

SBC’s revenue, including proportionate revenues from Cingular Wireless, the joint venture with BellSouth, rose 3% to $13.6 billion. Total data revenues grew 28%, lower than previous quarters. SBC management said demand for data services is slowing from economic pressures. About $2.2 billion, or 21.5% of wireline sales, was data revenue, compared with 13.7% two years ago. Advanced Internet and network integration services revenue jumped 42.3%.

SBC continued its strong growth in DSL subscribers, although it was partially hurt by ISP failures. SBC recorded net additions of DSLs of 83,000. According to SBC, that number was dampened by database reconciliations and instances of ISP resellers ceasing operations. Excluding the impact of those factors, net DSL additions would have totaled 170,000.

Cingular Wireless, which is 60% owned by SBC, grew total revenues, including sale of equipment, by 13.6% to $3.6 billion. It recorded a net gain of 710,000 customers during the quarter.

Including one-time items, SBC’s net income was 2.1 billion, or 61¢ per diluted share, compared with $1.9 billion, or 54¢ per share, in the second quarter of 2000. The one-time charges included $261 million in investment writedowns and $189 million in pension settlement gains.

SBC sold nearly 600,000 in-service long distance lines in the quarter, ending the period with 2.8 million long distance lines in Texas, Oklahoma and Kansas. According to Dan Reingold, analyst at Credit Suisse First Boston, SBC now has 27% consumer market share in those three states versus 21% at the end of the first quarter. About 560,000 of SBC’s long distance lines are business customers, Reingold said, 70% of which are small businesses.

SBC has long distance applications pending in California, Nevada, and Arkansas and it plans to refile its application in Missouri.

SBC is maintaining a cautious outlook for the rest of 2001. The company said revenue growth would be modest in the third and fourth quarters and it would continue to focus on expense management. For the year, earnings per share before one-time items is expected to be $2.35 to $2.40 per share.