AT&T Plans To Boost Dividend Despite 2Q Sales And Profit Decline - InformationWeek

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AT&T Plans To Boost Dividend Despite 2Q Sales And Profit Decline

Net income fell 11% as long-distance revenue declined, but the carrier signaled surprising confidence with plans to raise its dividend by 5 cents per share.

NEW YORK (AP) -- AT&T Corp.'s second-quarter profit slid 11 percent to $536 million as revenues continued to deteriorate in the fiercely competitive telephone business, but the struggling company signaled surprising confidence with plans to boost its dividend.

The quarterly profit reported Thursday, which amounted to 68 cents per share, compared with earnings of $603 million or 80 cents per share from the same operations a year ago.

Including the cable-TV business sold in November and other discontinued operations, AT&T had posted a loss of $12.8 billion in last year's second quarter. The year-ago loss was driven by a $13 billion writedown in the value of the cable assets, which AT&T had bought for top dollar at the height of the technology bubble.

Revenues in the just-ended quarter declined 8.2 percent to $8.8 billion, consisting of $6.4 billion from AT&T Business Services and $2.4 billion from AT&T Consumer Services. In the same three months a year ago, those businesses generated a combined $9.6 billion in revenue.

The company attributed the drop to continuing declines in long-distance telephone revenue, but said some of the lost business has been offset by growth in bundled local and long-distance service, as well as growth in several key markets of AT&T Business Services.

But despite the continuing deterioration in its core business, the company announced that its board of directors has stated its intention to increase the company's quarterly dividend by 5 cents per share to 23.75 cents beginning with the payment scheduled in November.

In addition, the company also said it plans to buy back up to $2 billion of debt.

Based on AT&T's recent stock price, the new dividend would generate an annual yield of nearly 5 percent, up from slightly less than 4 percent at the old payout rate.

David Dorman, AT&T's chairman and chief executive, said the company's success in reducing costs, adding new products such as local calling and providing quality service to business has bolstered cash flow enough to reward shareholders without preventing continued investment in the business.

"While the overall telecom market continues to get weak, AT&T continues to operate from a position of strength," Dorman said in a conference call with analysts. "We're outpacing our peers on many performance measures, and we continue to take share across many areas of our product portfolio."

As part of the company's effort to cut costs amid declining revenues, about 4,100 jobs were eliminated during the first half of the year. That represents about two-thirds of the 9 percent reduction in work force planned for the year.

A large number of those jobs have come from AT&T's bloated management ranks. Dorman told analysts that the company has reduced officer and executive headcount by 30 percent as part of a reorganization that will eventually halve the number of management layers from 14 to seven or eight.

The earnings report offered new signs of the continuing price competition in the telephone business, where AT&T and others are increasingly wooing customers with "all-you-can-eat" calling plans. AT&T said its long-distance revenues declined about 11 percent compared with the first quarter even though calling volume grew 12 percent.

Although the company continues to lose long-distance customers to the local Bell monopolies, AT&T continued to make headway in the Bells' core business, grabbing another 135,000 local calling customers for a total of 4.2 million lines.

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