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Spokane, Washington  Est. May 19, 1883

At&T; Faces Lower Profits During 1997 Stock Plunges At News

Associated Press

In his first major meeting with Wall Street analysts, AT&T Corp.’s new president sent the company’s stock reeling Monday by predicting that increased costs and rivalry would depress already sluggish profits this year.

John R. Walter and his hand-picked executive team disclosed plans for $2.6 billion in new cost cuts and up to $9 billion in investments in a fresh blueprint to revitalize the struggling telecommunications titan. In what analysts said was an unusually forward-looking appraisal of the company’s finances, Walter predicted that AT&T’s drive to cut costs and fresh investments in local, wireless, and other new businesses would result in double-digit growth in profits and revenues over the next five years.

But the nation’s most widely held stock plunged 7.5 percent after Walter forecast that near-term results would continue to disappoint. Walter said profit in the current quarter would be nearly 10 percent below the 76 cents a share earned in the final quarter of last year. That would be down even more from profits of 90 cents a share in the first quarter of 1996. First-quarter results are scheduled to be released toward the end of April.

AT&T stock plummeted $3 to close at $36.87-1/2 a share as the most active issue on the New York Stock Exchange.

While AT&T mostly cited the cost of investments and fierce rivalry that has eroded profits in its core long-distance business, some analysts put more blame on a bloated organization at the nation’s largest phone company.

The company has unnecessary layers of management, lack of a coherent business strategy and the “crushing weight of an inefficient system” for delivering products, said David Goodtree of Forrester Research, one of about 200 analysts who attended the opening session of a two-day investment conference at AT&T’s operational headquarters in Basking Ridge, N.J.

The disappointing profit “just speaks to the fundamental problems inside the company,” Goodtree said.

Walter acknowledged that AT&T was its own enemy, saying “it’s time to get out of our way.” Last week, he pushed ahead with structural changes that regrouped the company’s products according to the markets they serve and made management more accountable for their actions.

Displaying the no-nonsense management style he’s shown during his four months on the job, Walter - who assumes Robert Allen’s chief executive title in January 1998 - said the $2.6 billion in cost cuts over the next two years would hit nearly every part of the business.

About $1 billion in cost cuts would occur this year, with $600 million saved by the division that serves consumers and the remaining $400 million in savings in the division that serves businesses. The savings include squeezing more productivity out of workers by tying compensation to business performance.

Several analysts said they found it hard to believe the company could achieve such savings without cuts in its 130,000 work force.

But AT&T officials said any job cuts would fall within the plans announced last year to eliminate 17,000 positions. AT&T says it already has cut 5,700 jobs in the first stage of that three-year program, though its employment has remained relatively stable because it also has added jobs this past year as a result of growth in other areas.

Walter said AT&T’s financial results would be reduced by 75 cents to $1 a share for this year as a result of increased spending. Analysts had been predicting AT&T would earn about $3.60 a share in 1997.