SBC lowers Q1 forecast

(Telephony) Higher expenses due to service upgrades in the Ameritech region, the acquisition of Sterling Commerce, and growth initiatives in DSL and in-region long distance caused SBC Communications to lower its earnings forecast for the current quarter.

SBC’s management said the company will earn between 50¢ per share and 53¢ per share for the first fiscal quarter, below the consensus forecast by analysts of 59¢ per share, according to First Call/Thomson Financial. Earnings per share in the second, third and fourth quarters of 2001 are expected to be above 60¢ per share.

For the rest of 2001, SBC reiterated lowered guidance that it gave in December, saying operating earnings for the year would grow by 11% to 14%, reaching $2.45 per share, and revenues would rise about 8.5% compared to 2000.

SBC’s operating expenses will grow 9.8% year-over-year, according to Frank Governali, analyst at Goldman Sachs, and the bulk of expense growth will be realized in the first quarter.

“We’re cautious about all telcos’ 2001 results because of the weaker economy, the cost of growth initiatives, rising competition, and the fact that guidance and estimates have tended to be very aggressive, not leaving much room for error,” Governali said.

The first quarter will be a tough one comparison-wise for SBC. In 2000’s first quarter, the carrier had little or no expenses from launching out-of-region expansion of DSL, from providing interLATA long-distance service in Texas, and from the startup and marketing costs associated with Cingular, its wireless joint venture with BellSouth.

SBC’s shares, which have been relatively resistant to the general market downturn, fell almost three points on Thursday but rebounded slightly near the close of trading on Friday.

Contributing to the downturn in the stock were rumors--which SBC management refused comment on in a conference call with analysts--that SBC is interested in purchasing WorldCom.

“We believe that a purchase of WorldCom by SBC would not only fail to pass regulatory muster but would also burden SBC with a large amount of price-pressure-sensitive long-distance revenues,” said Credit Suisse First Boston analyst Dan Reingold in a report.

In the conference call, SBC also indicated that it will file 271 applications for California and Nevada with the Federal Communications Commission by mid-year and applications for Missouri and Arkansas later in the year. The carrier also said that net gains in DSL subscribers continue at a run rate of 3,500 to 4,000 per day, comparable to SBC’s fourth quarter.