AT&T Profit Rises Amid Cost Cuts

AT&T Corp. (T), the No. 4 U.S. telephone company, said on Thursday its fourth-quarter earnings increased as it cut costs through slashing jobs and lower equipment expenses.

The results from AT&T capped a rough year for the largest U.S. long-distance telephone company that included about 14,000 job cuts, a $11.4 billion write-down of its assets and a retreat from selling telephone services to residential customers.

AT&T executives said more cuts lay ahead this year, as they forecast a 15 percent to 18 percent drop in full-year revenue, but flat to higher operating profit margins. AT&T Chairman and Chief Executive David Dorman said prices for voice and data services to large corporations -- AT&T's core business -- were still under pressure.

"We're not ready to call a bottom in this market yet, though we're cautiously optimistic," Dorman said in a conference call. "I can't say when the supply-demand balance will be reconciled. I can say AT&T will be there and will be an even stronger competitor than we are today."

Analysts said while the company's quarterly results were better than expected, its outlook for 2005 was below expectations. Some had also expected AT&T to announce a share buyback (search) or higher dividend, moves the company said it was still studying and could take over the next several months.

"The AT&T saga continues but the plot never changes," Marquis Investment Research analyst Greg Gorbatenko said in a research note. "The stock is cheap, but it could be for a reason. The revenue declines show little sign of turnaround."

AT&T's net profits rose to $625 million, or 78 cents a share, from $340 million, or 43 cents a share, a year earlier. Those results included an after-tax depreciation benefit of $337 million, or 42 cents a share, stemming from the company's $11.4 billion write-down of its assets in the third quarter.

AT&T also said it recorded a $105 million settlement of charges for carrying calls with one of the dominant U.S. local telephone companies that added about 8 cents a share to earnings.

Revenue fell 10.2 percent to $7.3 billion, with a 7-percent decline in business services and an 18-percent drop in consumer revenue. AT&T has been forced to lower prices to hold onto business customers, and its consumer business has shrunk as the company stopped marketing its services.

Analysts had forecast revenue of $7.18 billion, according to Reuters Estimates.

For 2005, AT&T forecast revenue in a range of $25 billion to $26 billion, down from $30.5 billion in 2004, due to its retreat from consumer services and a decline in sales to small businesses. Analysts had expected revenue of $26.6 billion for all of 2005, according to Reuters Estimates

But AT&T also said it expected operating income margin in the "low double-digits," excluding any charges, compared with operating income margin of 10.7 percent in 2004.

AT&T executives said cost cuts would be key to meeting their profit goals. AT&T announced a plan to cut 11,200 jobs in October, and Dorman said 5,100 of those cuts would be made this year, equal to roughly 11 percent of AT&T's work force at the end of 2004.

Dorman also said while he expected additional job cuts beyond those already announced, the rate would be lower than the 23 percent reduction the company made in 2004. AT&T is also counting on savings from automating services and reducing marketing costs in its consumer business.

Shares of AT&T rose 1 cent to $18.52 on the New York Stock Exchange (search).