PHILADELPHIA – BellSouth Corp. (BLS), the No. 3 U.S. local telephone company, Friday posted higher first-quarter net income due to a one-time gain, but cut its 2002 outlook again in the face of slack demand and weak economic conditions in North America and Latin America.
BellSouth's warning followed similar news Thursday by rival Qwest Communications International Inc. (Q), which said its results had been hurt by slack demand for data services, increased competition in its local business, as well as slower-than-expected entry into the long-distance markets in its home territory.
The Baby Bells have been slammed by the weak economy and a shift to wireless telephones and electronic mail, which has reduced the number of telephone access lines in service.
"Shares of BellSouth are going to get whacked. Qwest is going to get whacked horribly and deservedly today and the sector is going to get hurt from guilt by association," said SoundView Technology Group analyst Michael Bowen.
BellSouth, the dominant local telephone company in nine Southeastern states from Kentucky to Florida, said net income rose to $1.16 billion, or 61 cents a share, from $891 million, or 47 cents a share, a year ago.
Its first-quarter results were boosted by a one-time gain on the sale of its stakes in Dutch telecommunications provider Royal KPN and German mobile phone operator E-Plus.
Excluding that gain and other items, BellSouth's profits totaled $1.02 billion, or 54 cents a share -- flat compared with its year-ago results.
Revenue, including revenue from its Cingular Wireless joint venture, fell 1.1 percent to $7.08 billion. Without Cingular, BellSouth's revenues fell to $5.53 billion from $5.92 billion.
GROWTH OUTLOOK CUT AGAIN
BellSouth said 2002 revenues, including Cingular Wireless, would grow about 1 percent, down from its already reduced forecast in February of 2 percent to 4 percent growth.
It said full-year profits, excluding one-time items, would be in the range of $2.36 to $2.43 a share. Wall Street analysts expect BellSouth to earn $2.40 a share in 2002, according to research firm Thomson Financial/First Call.
Earlier this week, Wall Street viewed better-than-expected first-quarter results at Sprint Corp., the No. 3 U.S. long-distance company, as a sign that perhaps the worst was over for the battered telecom sector. But subsequent news from Qwest, SBC Communications Inc. and BellSouth dampened those hopes, analysts said.
"People got a little excited when Sprint came out with halfway decent numbers ... but it's a little early to say we're going to get some sunshine. It's still overcast," Bowen said.
BellSouth said capital spending for the year will be in the range of $4.2 billion to $4.4 billion, down from an earlier forecast of $4.8 billion to $5 billion.
Telecom carriers have sharply ratcheted down capital spending in the past year to curb expenses amid weak demand. The cutbacks hurt sales at equipment makers such as Lucent Technologies Inc. and Nortel Networks Corp. and forced manufacturers to close factories and fire workers.
LOCAL AND DATA SALES GROW AT SLOWER PACE
First-quarter revenues in BellSouth's traditional local telephone business rose 1.5 percent to $2.9 billion. Local sales growth slowed from 4.4 percent in the fourth quarter.
Access lines in service dropped 1.8 percent and minutes of use on its network fell 10 percent.
Sales of data services rose 15 percent to $1.12 billion, driven by residential demand for high-speed digital subscriber line (DSL) Internet access, the company said. But data sales growth slowed from 25 percent in the fourth quarter.
The company said it now expects data revenues to grow about 15 percent for the full-year, down from its earlier forecasts of 22 percent to 25 percent growth.
BellSouth added 108,000 Broadband DSL customers during the quarter, bringing its customer base to 729,000 subscribers. It reiterated it expects 1.1 million customers by year-end.
In Latin America, BellSouth's revenues dropped 15.1 percent to $656 million in the quarter, reflecting currency devaluation and deteriorating economic conditions, principally in Argentina and Venezuela.
The company added 310,000 Latin American customers in the quarter, bringing its subscriber base there to 7.7 million. BellSouth and its wireless partners serve 11 Central and South American countries.