NEW YORK - AT&T Corp. plans to boost its dividend for the first time since slashing the quarterly payout in early 2001, signaling surprising confidence in the company's prospects even as its core telephone business continues to deteriorate.
The announcement Thursday came as AT&T posted an 11 percent decline in second-quarter earnings and an 8 percent decline in revenues. Once again, the drop in revenue was driven by the fierce competition and price wars in long-distance calling, as well as overall economic weakness that keeps a lid on spending by high-volume business customers.
But despite the bleak backdrop, AT&T said its cost-cutting efforts have enabled the company to generate enough cash to continue to invest in the business and reward shareholders.
The reduction in operating expenses "allows us to maintain a lot of financial flexibility," Thomas Horton, AT&T's chief financial officer, said in an interview. "We look at the dividend in terms of overall financial policy. We're going to invest in the business, and we're going to return value to shareowners."
To that end, the company said it plans to increase the quarterly dividend by 5 cents per share to 23.75 cents beginning with the payment scheduled in November.
And, in another sign of financial optimism, the company also said it plans to use its cash horde of $5.3-billion to buy back up to $2-billion in debt. With about $17.5-billion in debts at the end of June, AT&T has now paid off about two-thirds of the $56-billion mountain of debt amassed during the cable buying spree under former chief executive C. Michael Armstrong.
The dividend increase would be the first since AT&T decided in late 2000 to slash its quarterly payout by 83 percent amid a severe cash crunch caused by plunging revenues and the mammoth interest payments due on the 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.
AT&T's stock was up 47 cents to close at $20.00 on the New York Stock Exchange.
AT&T said it earned $536-million, or 68 cents per share, in the three months ended June 30. That compared with earnings of $603-million or 80 cents per share from the same operations in the second quarter of 2002.
Including the giant cable TV business sold to Comcast 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 technology bubble.
Revenues in the just-ended quarter declined 8.2 percent to $8.8-billion. In the same three months a year ago, those businesses generated a combined $9.6-billion in revenue.
AT&T's consumer business, which not too long ago produced $25-billion in annual sales, saw revenues slide another 18.4 percent to $2.4-billion in the latest quarter. AT&T Business Services generated the other $6.4-billion of the revenue total, down 5 percent from a year ago.
The company said some of the revenue decline 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.
As part of the company's effort to cut costs, 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 2003.
A large number of those jobs have come from AT&T's bloated management ranks. AT&T chairman and chief executive David 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. 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.
The second-quarter profit included a one-time charge of $66-million to cover worker severance costs and a one-time gain of $25-million related to the dissolution of the Concert joint venture with British Telecom, as well as other investment related factors.
