Earnings mixed for big Vegas companies

Tuesday, Oct. 17, 2000 | 11:25 a.m.

SUN STAFF AND WIRE SERVICES

Big companies operating in Las Vegas today and Monday issued mixed reports on their earnings, as the flood of third quarter profit reports began.

The biggest banks in the state, Bank of America and Wells Fargo, reported earnings that met or beat analyst expectations. The No. 1 airline in Las Vegas, Southwest Airlines, and a big Las Vegas hospital operator, Universal Health Services, also beat expectations. Citigroup, which has a big Citibank call center and bank branches in Las Vegas, also impressed analysts with its earnings.

But Sprint, the dominant local phone company in Las Vegas, issued a disappointing earnings report.

Sprint

The Westwood, Kan.-based telecommunications giant said third quarter profit fell 0.7 percent as sales growth missed forecasts and expenses rose.

Profit from operations fell to $416 million or 47 cents a share vs. $419 million or 48 cents in the year-ago quarter.

Sprint, the dominant local phone company in Las Vegas, said quarterly sales rose 2.4 percent to $4.4 billion.

At Sprint PCS, the wireless unit that trades as a tracking stock, revenue doubled to $1.67 billion as 839,000 customers were added in the quarter. The Sprint PCS loss narrowed to $390 million or 41 cents a share from $615 million or 65 cents.

Sprint shares have lost two-thirds of their value this year as its merger with WorldCom Inc. was canceled and long distance prices fell.

"There's an absence of a near-term catalyst for the stock," said ABN Amro analyst Kevin Roe.

Southwest Airlines

The Dallas company said third quarter net income increased 45.1 percent to $184.3 million or 35 cents per share, compared to $127 million or 24 cents in the 1999 third quarter.

Southwest said its 35 cents per share beat First Call's consensus estimate of 32 cents.

Southwest said operating revenues for third quarter increased 19.7 percent to $1.48 billion.

"There is no doubt our revenues were augmented due to operating problems experienced by several airline competitors, although basic demand for our low fares and friendly customer service remained strong during third quarter 2000," said Chairman and Chief Executive Herbert Kelleher.

Southwest's numbers were helped by a 1 percentage point gain in plane occupancy to 71.6 percent -- the third highest load factor in Southwest's history, the airline said.

The airline was hit by the rising cost of jet fuel, however. Southwest said its average fuel price rose 27 percent, although it was able to ease the increase by buying some fuel through advance purchases at guaranteed prices. The hedging saved $43.1 million, the airline said.

Bank of America

Based in Charlotte, N.C., B of A said its net earnings dropped 15 percent in the third quarter, hurt by higher interest rates and a hefty restructuring charge. Still, Bank of America beat analysts' expectations. Citigroup is the nation's largest banking company by assets, and Bank of America is No. 2.

B of A's net earnings for the third quarter were $1.83 billion, or $1.10 per share. Bank officials pointed to higher interest rates as well as a $346 million restructuring charge and a $257 million drop in the value of auto leases.

"Bank of America in the third quarter faced the same head wind of higher interest rates and a slowing economy as other banks," said Hugh L. McColl Jr., chairman and chief executive officer.

In the same three months of 1999, the bank earned $2.15 billion, or $1.23 per share. Excluding the large restructuring charge, the bank had operating profits of $2.18 billion, or $1.31 a share, in this year's third quarter.

In July, Bank of America said it planned to cut as many as 10,000 jobs as it changes its focus from growing through mergers to becoming more profitable through use of technology and operating efficiency.

Bank of America employed 150,854 people as of June 30, more than 11,000 fewer than a year earlier. The bank was created in 1998 when NationsBank acquired San Francisco-based BankAmerica.

Wells Fargo & Co.

The San Francisco-based bank reported a third-quarter profit of $1.07 billion, meeting Wall Street's expectations with a blend of high-tech investments and high-touch customer service.

Wells' earnings per share of 64 cents per share matched the consensus of analysts polled by First Call/Thomson Financial.

Wells also affirmed that it expected to meet analysts' expectations for the final quarter of the year.

Today's showing continued a string of solid results posted by Wells since November 1998, when Norwest bought Wells and kept the Wells name.

"They continue to deliver on all the promises that they made at the time of the merger, which sets them apart from much of the industry. They are a high-end performer," said Joseph Morford, an analyst with Dain Rauscher Wessels in San Francisco.

The bank's loan losses climbed during the quarter but Wells said its volume of problem assets remained at below-normal levels. Signs of loan troubles at other major banks have spooked investors in recent weeks.

Wells' traditional branches, which the bank calls "stores," continued to enjoy success selling more products to existing customers. In California, by far the bank's biggest market, product sales climbed 20 percent from last year.

The aggressive cross-selling strategy is a part of the bank's makeover since its the Norwest purchase.

Wells previously had been trying to discourage branch traffic, but the new management team views the branches as a great way to get to know the bank's customers and sell them more products. Ultimately, Wells would like its customers to have an average of eight financial services products from the bank.

The bank's aggressive sales tactics turn off some customers. Earlier this year, Wells began pitching products on some automated teller machines, forcing customers to respond with a "yes" or "no" before they could receive their money.

Wells is poised to become the largest bank in Nevada, ahead of Bank of America, after its planned purchase of First Security Corp.

Citigroup

Buoyed by strong growth in consumer operations as well as investment banking and brokerage, earnings at Citibank owner Citigroup Inc. rose in the third quarter to exceed Wall Street expectations.

The giant financial services company said net income in the July-September period totaled $3.09 billion, or 67 cents a share, up from $2.44 billion, or 52 cents a share, a year earlier. Analysts surveyed by First Call/Thomson Financial had expected earnings of 65 cents a share.

George A. Bicher, an analyst at Deutsche Banc Alex. Brown in New York, described Citigroup's performance as very strong.

"What was impressive was that they had nice performance from a broad group of business units, both consumer and commercial," Bicher said. And unlike other big banks, which have had to increase loan reserves, the nonperforming assets at Citigroup declined, he noted.

Citigroup said income from consumer banking activities rose 17 percent in the latest period to $1.32 billion from $1.13 billion a year earlier. Income from investment banking and brokerage operations was $1.59 billion, up 40 percent from $1.13 billion a year earlier, while income from asset management and private banking operations rose 14 percent to $176 million from $154 million.

Universal Health Services Inc.

The King of Prussia, Pa., hospital company said it had third-quarter net income of 72 cents a share, beating the 68-cent average estimate of analysts surveyed by First Call.

In Las Vegas, Universal operates the Valley Health System. It includes Valley, Desert Springs and Summerlin hospitals and is a partnership with Quorum Health Group.

Universal said net income rose to $22.3 million from $10.8 million or 34 cents in the year-ago quarter. Revenue jumped 15 percent to $562 million.

A year ago, Universal said it was having trouble collecting payments from some managed care insurers in Las Vegas and had higher staffing costs in Amarillo, Texas. Both problems appear to have been solved.

Analyst Kemp Dolliver of SG Cowen Securities Corp. said Universal renegotiated a contract in Las Vegas with PacifiCare Health Systems.

Universal hospitals in Las Vegas are now paid for the cost of care, instead of receiving a fixed rate to treat patients.

In Texas, Universal recruited a physicians group to replace one that defected to a competitor, Dolliver said.

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