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Losses Pile Up at Battered Telecom Firms

Earnings: Sprint, Sprint PCS, Level 3 and Nortel report shortfalls, but Nokia posts a profit. The outlook for the industry remains cloudy.

July 19, 2002|ELIZABETH DOUGLASS | TIMES STAFF WRITER

Signs of recovery in the crippled telecommunications industry were nowhere to be found in the latest batch of earnings reports, as several of the sector's biggest players Thursday announced continuing losses and tempered expectations for the future.

But much of the bad news was expected, and investors showed their relief by boosting the shares of Sprint Corp., Sprint PCS Group and Level 3 Communications Inc.

Shares of cell phone giant Nokia, which reported a profit, and troubled Canadian equipment maker Nortel Networks Corp., which reported a smaller loss, fell slightly.

Sprint, the nation's third-largest long-distance carrier, said its second-quarter loss on a consolidated basis--the combination of its wireless and other businesses--ballooned by 46% to $63 million, from a $43-million deficit a year earlier. Consolidated sales rose 5.9% to $6.83 billion

The Overland Park, Kan.-based company has cut costs, jobs and capital spending to keep its debt rating from falling to "junk" status. It will soon sell its phone directory unit for as much as $2 billion to further improve its cash position.

Sprint's report "kind of helped ease some fears....They're dealing with their funding, and they may get some decent bids for their directory business," said Rick Grubbs, an analyst at Credit Lyonnais Securities who lists Sprint's phone business as a "hold" and its wireless business as a "buy." He does not own either Sprint stock, and his firm does not have banking business with Sprint.

Sprint shares rose 41 cents to $9.16 on the New York Stock Exchange.

Sprint's long-distance, data, Internet and local phone businesses--which trade separately as the FON group--continued to suffer from revenue challenges such as falling prices and slack demand, said Sprint Chairman William T. Esrey. FON group sales fell 8% to $3.97 billion--the unit's sixth straight quarterly sales decline.

The FON group's profit plunged 65% to $102 million, or 12 cents a share, from $290 million, or 33 cents, a year earlier. Excluding the write-down of its investment in Internet provider EarthLink Inc. and other one-time items, the quarterly profit equaled 36 cents a share, slightly higher than analysts' expectations of 31 cents to 35 cents.

Sprint's wireless business, which trades as PCS, saw its revenue jump 32%, but its losses were higher than expected, totaling $170 million, or 17 cents a share. Still, that's a 31% improvement on the deficit of $247 million, or 26 cents a share, a year earlier.

The PCS unit met lowered expectations by adding 308,000 subscribers and described its forecast of 2.5 million to 2.7 million new customers for the year "challenging but achievable."

Shares in Sprint's FON business rose 56 cents to $12.26, while shares in the PCS group rose 50 cents to $5.50 in regular trading, both on the NYSE.

Nokia, the world's biggest cell phone maker, said its second-quarter profit rose 46% despite a 6% decline in sales.

The Espoo, Finland-based company earned $862 million in the quarter ended June 30 as cell phone unit sales rose 12%. However, the company lowered the low end of its earnings estimate for the full year and reduced its estimate for industrywide handset sales to about 400 million units, which brings its forecast in line with the one announced by rival Motorola Inc. this week.

"From January through March, the handset market was showing some signs that demand was recovering, but that recovery appears to have stalled out a bit," said Mark Roberts of Wachovia Securities. His firm rates Nokia a "buy," but Roberts does not own Nokia shares, and his firm does not have banking business with Nokia.

Nokia's U.S.-listed shares fell 79 cents to $13.33 on the NYSE.

Nortel Networks, which released its second-quarter results after the markets closed, reported a narrower loss of $697 million, or 20 cents a share, an improvement over the second period in 2001, when acquisition-related costs pushed the company's losses to $19.4 billion, or $6.08 a share.

Excluding special charges and gains, acquisition costs and the cost of stock options, Nortel's quarterly loss totaled $323 million, or 9 cents a share, in line with analyst estimates of a loss of 7 cents to 9 cents. The year-earlier deficit, without one-time items, totaled $1.55 billion, or 48 cents a share.

Brampton, Canada-based Nortel continued to be pummeled by disappearing demand for telecommunications equipment, as its sales plummeted 40% to $2.77 billion from $4.6 billion. On average, analysts had expected sales of about $2.8 billion.

With demand showing no sign of improving, Nortel plans to chop 3,500 more jobs from its payroll, which already has been cut in half. The company's stock fell 4 cents to $1.31 in Thursday trading before Nortel's earnings were announced.

Level 3's second-quarter loss narrowed as the fiber-optic network operator's sales almost doubled on software sales and recently acquired companies.

The net loss narrowed to $156 million, or 39 cents a share, from $731 million, or $1.99, a year earlier. Revenue rose to $750 million from $387 million. Investors pushed the stock up 5 cents to $5.77 on Nasdaq.

Broomfield, Colo.-based Level 3 said its core telecommunications business continued to falter, with sales falling to $276 million from $329 million a year earlier.

"The message they're sending is it's still ugly out there," said Daniel Zito, an analyst at Legg Mason Wood Walker Inc., which lists Level 3 as a "sell."

Bloomberg News was used in compiling this report.

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