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AT&T slashes work force
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January 26, 1998: 8:38 p.m. ET
Long-distance giant to cut up to 18,000 workers; 4Q numbers beat estimates
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NEW YORK (CNNfn) - Moving to stem a decline from its once-indomitable position in the telecommunications industry, AT&T on Monday confirmed a cost-reduction plan that includes as many as 18,000 job cuts.
The news came only hours after the long-distance phone giant announced better-than-expected fourth-quarter earnings.
AT&T shares (T) ended the day off 3-13/16 to 61-11/16.
Under the plan, AT&T said it will:
- Eliminate 15,000 to 18,000 -- or between 12 and 14 percent of its 128,000-member work force -- by the end of 1999.
- Take a charge of between $800 million and $1.2 billion in the second quarter to pay for the cuts, which the company says will save it some $700 million.
- Offer a new service in March, called One Rate Online, which lets customers order AT&T long distance directly from the company's website.
AT&T aims to remain market leader
New AT&T Chairman C. Michael Armstrong said the plan, combined with wise investments, will help the company remain a market leader.
"We have set aggressive targets to cut costs, particularly sales, general and administrative expenses, to make us competitive with our rivals of today as well as of the future," he said in a statement.
The company said it will offer the majority of its non-executive managers early retirement packages that will include a 20 percent increase in their accumulated retirement benefits as well as post-retirement life and health insurance.
AT&T expects between 10,000 and 11,000 managers and 5,000 to 7,000 non-management employees to leave through a combination of downsizing and attrition. If not enough employees accept the offers, AT&T said it will lay off employees to reach its goal.
The company said it expects revenue growth of between 2 and 4 percent in 1998, which includes the results of Teleport Communications Group, a business phone service provider which AT&T recently announced it would acquire. In addition, the company plans to cut sales, administrative expense and general expenses by $1.6 billion in 1998.
Analysts, employees impressed
Analysts were mostly impressed. Stephanie Comfort, a telecommunications analyst at Morgan Stanley Dean Witter, said the cost-cutting moves should allow AT&T to enter into other profitable businesses. (131K WAV) or (131K AIFF)
Analyst George Reed-Dellinger of HBSC Washington Analysis said AT&T's pledge to beat consensus earnings estimates and hike its growth rate were impressive. (98K WAV) or (98K AIFF)
Employees who spoke to CNNfn following the announcement were generally supportive of Armstrong's efforts.
"I think it's a good thing that they're finally going to be downsizing some management, because there is a lot of waste," said Laura Unger, president of Local 1150 of the Communications Workers of America.
Said another employee: "Look at the stock. Since he's been here, the stock's skyrocketed... I think he's doing the right thing."
AT&T's fourth-quarter tops estimates
Just hours earlier, the company said it earned $1.33 billion, or 81 cents a share, on a diluted basis in the fourth quarter compared with profits of $1.24 billion, or 77 cents a share, a year ago. That result handily beat Wall Street expectations of 71 cents a share.
The income figures exclude a 13-cent gain from discontinued operations, including the sale of its Universal Card Services unit to Citibank. The results also exclude a 10-cent gain from the sale of AT&T Capital Corp. to Newcourt Credit Group Inc.
Among the bad news in the quarter was revenues from continuing operations, which were held down by sluggish long-distance growth. Revenues were essentially flat at $12.82 billion compared with $12.87 billion in the year-ago period.
The company blamed the dip on customers using free minutes as part of popular optional calling plans. However, AT&T said the drop in long distance was partially offset by higher business long-distance and wireless revenues.
For the year, AT&T earned $4.63 billion, or $2.84 a share, compared with $5.9 billion, or $3.66 a share, a year ago. Its 1997 numbers beat analysts' expectations of $2.69.
In a recent interview with Business Week, Armstrong compared AT&T's cost structure to that of IBM Corp. during the days when mainframes were the bulk of its business.
In addition to pushing AT&T into local markets -- the reason behind the recent acquisition of Teleport Communications -- Armstrong reportedly wants to see the company do a better job of exploiting new technologies, such as the Internet and digital-wireless markets.
Looking ahead to the rest of 1998, AT&T said it expects to spend about $8 billion on capital improvements, including the Teleport acquisition. It is projecting first-quarter earnings of 73 to 75 cents a share, excluding charges related to Teleport.
For the year, AT&T expects an operating income of $3.25 to $3.35 a share, including the Teleport acquisition.
Although AT&T shares have jumped 44 percent since Armstrong took over, some analysts remain skeptical he can reach that goal in his stated timetable of only two years. Some say the pledges echo those of his predecessor, former CEO Robert Allen.
Allen pledged to cut 40,000 jobs. While he vowed that 17,000 of those cuts would come from the new AT&T formed after the spin-offs of Lucent Technologies and NCR, the company ended up cutting only 10,000 positions, mostly through attrition.
--from staff writer Cyrus Afzali
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