SBC’s profit declines

(Telephony) SBC Communications matched analysts’ expectations by recording lower first-quarter profits and a moderate increase in total revenue for the first quarter, attributing a drop in call volumes and new orders to a widespread economic slowdown.

Excluding one-time items, SBC reported operating earnings of $1.74 billion, or 51¢ per share, compared with $1.91 billion, or 56¢ per share, a year ago. Including pension settlement gains and charges related to the company’s cable operations, net income rose to $1.85 billion, or 54¢ per share, compared with $1.82 billion, or 53¢ per share, a year ago.

Total revenues, including proportionate sales from SBC’s joint venture Cingular Wireless, increased 4.7% to $13.1 billion. Excluding Cingular, SBC’s revenue fell 11% to $11.19 billion. A company statement said first-quarter revenue was adversely impacted by SBC’s sale of Ameritech’s security-monitoring business and a shift in directory publishing dates.

SBC warned that economic sluggishness--leading to diminished inward call volumes, slower access-line growth, and customer defaults--would also cause full-year earnings to be lower than expected. Before one-time items, management expects 2001 operating profits in the range of $2.35 to $2.40 per share. Analysts had estimated the company would earn $2.46 per share, according to First Call/Thomson Financial.

“The economy is having a greater impact on our business than we projected,” said Edward Whitacre Jr., SBC’s chairman and CEO. “It’s not just a dot-com phenomenon. In our territory, companies of all sizes are experiencing the slowdown. What used to be unthinkable-like a major power-company bankruptcy--has started to happen.”

SBC will reduce capital spending by $500 million for the remainder of the year to offset a “moderate reduction” in operating cash flow. For the quarter, SBC’s operating expenses increased 9.9%, while operating revenues increased only 4.7%. The capex reduction will not affect the rollout of Project Pronto, SBC’s DSL initiative, Whitacre said.

SBC’s data, long distance, and wireless businesses continue to drive growth. Quarterly data revenues grew 40% to $2.1 billion, and the company ended the quarter with 954,000 DSL subscribers, a net increase of 179,000.

According to Dan Reingold, analyst at Credit Suisse First Boston, net adds in DSL “slowed significantly” from the fourth quarter’s 251,000 net adds. SBC’s daily install rate for DSL was “likely impacted by a reduction in SBC’s efforts to sell bundled Compaq PCs with SBC’s DLS service and also by a database reconciliation that resulted in some customers being deleted from the subscriber rolls,” Reingold said.

In long distance, SBC ended the year’s opening quarter with 2.2 million lines in Texas, Oklahoma and Kansas. The company expects to win long-distance relief in Arkansas, California and Nevada this year. It filed for 271 approval in Missouri earlier this month.

Cingular Wireless added 854,000 subscribers in the first quarter and increased revenue 14.8% to $3.1 billion.