updated 1/25/2006 12:26:15 PM ET 2006-01-25T17:26:15

BellSouth Corp., the dominant local telephone provider in nine southeastern states, said Wednesday that heavy hurricane-related costs contributed to a more than 54 percent drop in fourth-quarter profit that occurred despite a slight increase in revenue and solid gains in DSL customers.

Still, its results excluding certain one-time items beat Wall Street expectations, and its stock rose 2 percent in afternoon trading.

The Atlanta-based company said it earned $618 million, or 34 cents a share, for the three months ending Dec. 31, compared to a profit of $1.36 billion, or 74 cents a share, in the same period a year ago.

Excluding one-time items, BellSouth said it earned $965 million, or 53 cents a share. On that basis, analysts surveyed by Thomson Financial were expecting earnings of 45 cents a share.

Revenue in the quarter rose 1.9 percent to $5.24 billion, compared to $5.15 billion in the same three-month period a year ago.

BellSouth said hurricane-related expenses in the fourth quarter reduced its results by 8 cents a share. The fourth-quarter results were also weighed down by the company’s accounting for wireless merger amortization, which involves Cingular Wireless LLC. The company said it recast prior periods to reflect the accounting change.

Revenue in the fourth quarter was reduced by $48 million due to Hurricane Katrina-related billing credits, and the company estimated that 60,000 access lines were disconnected in the affected area. BellSouth had estimated in September that the future cost to restore its network would be about $400 million to $600 million. The company said Wednesday that it now expects the cost to total $700 million to $900 million. It only expects about $250 million of that cost to be covered by insurance.

“We certainly hope that this unprecedented level of hurricanes won’t repeat,” Pat Shannon, BellSouth’s chief financial officer, said in a conference call with investors.

BellSouth and AT&T Inc., the renamed SBC Communications Inc., are the parents of Atlanta-based Cingular, the nation’s largest cell phone provider. Cingular acquired AT&T Wireless Inc. for $41 billion in October 2004.

Shannon said the company was pleased with Cingular’s strong earnings reported Tuesday.

“What is good for Cingular is obviously good for BellSouth,” he said.

For all of 2005, BellSouth earned $3.29 billion, or $1.80 a share, compared to a profit of $4.76 billion, or $2.59 a share, for the same period a year ago. Twelve-month revenue rose 1.2 percent to $20.55 billion, compared to $20.3 billion in 2004.

BellSouth added 204,000 net DSL customers in the fourth quarter, but it lost 409,000 access lines in the quarter to drop its total at the end of the year to 20 million. It said part of the loss was due to the hurricane, but the loss was primarily driven by more people using cell phones to make calls instead of landline telephones. It also cited competition from cable providers and other providers of voice over Internet protocol service.

“The most aggressive has been Time Warner in the Carolinas,” Shannon said. “Comcast is beginning to roll out in Atlanta and Jacksonville. So far, we’ve seen no significant pickup in line loss because of it. We are priced very competitively in these markets.”

Shannon said the competition should continue, but added that BellSouth isn’t too concerned.

“It’s a controllable competitive threat and we’ll continue to respond to that in kind,” he said.

BellSouth, one of the regional phone companies that emerged from the Bell System breakup, is the dominant local service provider in Georgia, Tennessee, Florida, Alabama, Kentucky, Mississippi, North Carolina, South Carolina and Louisiana.


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