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SBC, Sprint Top Earnings Forecasts

July 20, 2000

Second-quarter profits barely rose at SBC Communications and BellSouth, while Sprint Corp.’s income fell due to its failed merger with WorldCom and other expenses, but SBC and Sprint still topped forecasts and BellSouth met expectations.

SBC, the local telephone monopoly for most of the Southwest and Midwest, posted another quarter of robust growth in wireless and Internet revenues, helping offset heavy spending for an ambitious expansion in high-speed Web service and new markets.

But the most notable part of SBC’s second-quarter report may have been a statistic from the past two weeks: more than 150,000 Texans have signed up for long-distance service since the company entered that business for the first time on July 10.

BellSouth, the local phone company for most of the Southeast, also reported steady growth in its wireless and Internet operations, but investors sent the company’s stock lower amid disappointment over its gain in customers for high-speed Web access.

Excluding merger-related costs, Sprint’s operating income from its telephone, Internet and business services units rose 13 percent, while the company’s Sprint PCS wireless business posted a smaller-than-expected loss.

SBC Communications

San Antonio-based SBC, the nation’s largest local phone company, said operating profits totaled $1.92 billion, or 56 cents per share, in the April-June period.

Those figures don’t reflect certain one-time gains or $153 million in costs related to SBC’s strategic initiatives and the continuing merger integration with Ameritech. Including those factors, SBC had a net profit of $1.85 billion, or 54 cents per share

In last year’s second quarter, SBC’s operating profit came to $1.91 billion, or 55 cents per share, while net profits totaled $1.94 billion, or 56 cents per share.

Second-quarter revenues grew 9.8 percent to $13.2 billion, compared with a year-ago tally of $12 billion. Internet and data-related revenues rose 38.2 percent to $1.8 billion, while wireless revenues grew 30.6 percent to $1.6 billion.

In terms of customers, the company doubled the number of subscribers for the high-speed Internet service called DSL and added 537,000 wireless subscribers.

The company, which in late June won federal approval to begin providing long-distance in Texas, also disclosed that it has already sold the service to more 150,000 customers since the service was launch July 10.

In Thursday’s trading on the New York Stock Exchange, shares of SBC fell 62.5 cents to $43.


Atlanta-based BellSouth said its second-quarter income was $1.1 billion, or 56 cents per share. That compared with an operating profit of $973 million, or 51 cents a share, in the same period last year, excluding one-time factors which left the company with a net profit of $786 million, or 41 cents per share.

Revenue increased nearly 10 percent to $6.75 billion for the quarter, compared to $6.15 billion in the same period last year.

The latest profit figure beat the consensus forecast of 55 cents per share among analysts surveyed by First Call/Thomson Financial, but BellSouth’s stock slid $1.688 to $39.875, a loss of 4 percent, on the New York Stock Exchange.

Pat Comack, a telecommunications analyst with Guzman & Co. in Miami, said investors might have been comparing BellSouth’s DSL and wireless growth with the figures reported Thursday by Baby Bell rival SBC.

BellSouth’s DSL accounts grew just 33 percent, to 74,000 customers, in the quarter, but the company remains confident in its goal of having 200,000 subscribers by year’s end, spokeswoman Pattie Kushner said. By comparison, SBC Communications doubled its DSL accounts to 400,000 during the quarter.

Sprint Corp.

Kansas City-based Sprint’s wireline calling and data businesses posted operating income of $926 million, or 67 cents per share, in the second quarter, up from $821 million, or 56 cents a share, during the same period last year.

But that figure doesn’t reflect one-time factors such as the company’s investment in certain ventures, as well as $161 million in costs from the WorldCom deal, which was called off last week amid complaints by U.S. and European regulators that the merger would hurt competition in long-distance and Internet network services.

Including all one-time factors, second-quarter profits totaled $365 million, or 41 cents a share, down from a net profit of $387 million, or 44 cents a share, a year ago.

Second-quarter revenue from the group was $4.43 billion, up 5 percent from $4.20 billion a year earlier.

The Sprint PCS wireless division reported an operating loss of $469 million, or 46 cents per share, down from the year-ago deficit of $708 million, or 61 cents a share, and smaller than the 49-cent loss expected on Wall Street. The failed merger with WorldCom cost the PCS division $24 million, or 2 cents per share.

Wireless revenues doubled to $1.46 billion compared the second-quarter 1999 total of $736 million. Customer growth was also strong with the company’s subscriber base growing by 883,000 to about 7.4 million.

For the first time, the PCS division recorded positive cash flow, totaling $11 million, compared to a deficit of $338 million a year ago. The positive cash flow was a quarter ahead of schedule, Sprint Chief Executive William Esrey said.

In Thursday’s trading on the New York Stock Exchange, Sprint’s FON stock, representing its wireline operations, fell $2.687 to $42.563, down 6 percent. Shares of the PCS wireless group rose 51.6 cents to $64.375.


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