Microsoft profit in line with forecasts

Friday, Jan. 19, 2001 | 10:54 a.m.

SUN WIRE REPORTS

Capitalizing on strong sales growth for its Windows 2000 desktop operating system at the end of the year, Microsoft on Thursday reported quarterly earnings that met Wall Street's scaled-back expectations.

The company reported record revenue of $6.59 billion for the quarter ended Dec. 31, an 8 percent increase over the $6.11 billion for the same quarter last year. Net income and diluted earnings per share were $2.62 billion and 47 cents per share, up marginally from the $2.44 billion, or 47 cents per share, a year ago. The earnings per share met a consensus estimate of Wall Street analysts reported by First Call/Thomson Financial.

On Dec. 14, Microsoft took the unaccustomed step of warning Wall Street that it would have lower revenues than previously expected as a result of a downturn in the PC market and in corporate purchases.

Thursday's earnings news was announced after the markets closed. Microsoft's shares ended the trading day at $55.63, up $2.69, and went as high as $58 after hours. The stock has tumbled from $115 last March amid concerns about the government's antitrust case and the computer industry's slowdown.

"There's a little relief that they didn't drop any more bad news on us," said Richard Sherlund, an analyst at Goldman, Sachs & Co. "That will give the stock a boost. Maybe it's OK to go back in the water."

Despite the strength of its operating systems sales, the company added a gloomy note by reporting that revenue for its Office software declined for the second quarter in a row. Revenue from those programs, known as desktop applications, was $2.49 billion in the latest quarter, down 2 percent from $2.53 billion a year ago.

The declines are the first for the company's desktop programs, which dominate the PC software market. As a result, analysts are questioning whether the company will be able to continue to persuade consumers to shift from one generation of its software to the next.

"Office represents the single largest product for this company," said Sanjiv Hingorani, a Wall Street analyst at Dresdner Kleinwort Wasserstein in New York. "What is going to cause Office revenues to grow in the future?"

United Airlines

United Airlines' parent company, UAL Corp., lost $124 million in the fourth quarter as soaring fuel and labor costs extended its turmoil in a year plagued with flight cancellations and delays.

The loss reported Thursday by the world's largest airline company was less than analysts expected but nearly double that of the previous quarter, when the carrier lost money for the first time in five years.

Excluding one-time items, UAL's loss came to $2.41 per share, compared with a profit of $100 million, or 59 cents per share, in the same quarter a year earlier. Analysts interviewed by First Call/Thomson Financial had estimated the airline would lose $3.84 a share.

Revenues rose 7 percent to $4.79 billion, up from $4.48 billion.

For the year, earnings were $322 million, or $2.38 per share, down a whopping 43 percent from the previous year's $778 million, or $5.87 per share.

Full-year revenues climbed 7 percent to $19.35 billion from $18.03 billion in 1999.

United has been struggling for months to win back customers who fled to other airlines when labor strife resulted in a disastrous summer of more than 20,000 cancellations and countless delays.

The Elk Grove Village, Ill.-based company began returning to normal after giving its pilots industry-leading raises in late August, but the pay hike continues to have a ripple effect on the high costs of other labor contracts at United and elsewhere.

The carrier warned that, while first-quarter bookings are higher than a year ago, it expects to post another loss in this period because of the same steep increases in jet fuel and labor costs that are dogging other airlines.

In the fourth quarter, fuel costs of $719 million were 45 percent higher than a year earlier and salaries and related costs rose 11 percent to $1.82 billion. Revenue from passengers was up a solid 7 percent to $4.11 billion, thanks in part to fare increases.

"Our solid revenue performance could not offset our higher costs, which were driven primarily by substantially higher fuel and labor costs," said Chairman and Chief Executive James Goodwin. "Further hampering the quarter's results were the reduced capacity levels we put in place to improve our operational reliability."

The company expects to achieve a modest profit for 2001, it said.

United is counting on federal approval of its proposed merger with U.S. Airways, which would give it about a quarter of all U.S. passenger traffic and shared domination of the domestic market with American Airlines.

A final decision is expected by April 2; most experts anticipate it will be approved.

Northwest Airlines

Minneapolis-based Northwest Airlines reported a quarterly loss Thursday of $69 million, or 84 cents per share, due primarily to a pretax charge of $125 million for the anticipated retirement of a portion of its DC10 fleet.

Excluding that item, as well as a charge of $26 million related to the sale of a portion of its holdings in Continental Airlines, Northwest earned $31 million, or 34 cents a share.

In the year-ago period, Northwest earned $29 million, or 31 cents per share.

Analysts surveyed by First Call/Thomson Financial had expected fourth-quarter earnings of 31 cents a share.

Operating revenue for the fourth quarter increased 7 percent, from $2.55 billion to $2.74 billion, reflecting strong performance from both passenger and cargo operations.

"The fourth quarter was challenging," said Mickey Foret, Northwest executive vice president and chief financial officer. "Our financial performance was negatively impacted by severe weather and labor disruptions, but despite that we experienced strong revenue performance and we improved earnings year-over-year."

Passenger revenue per available seat mile increased by 2.5 percent year-over-year, while Northwest's costs per available seat mile were up just over 1 percent in the quarter, excluding the effects of a 30 percent increase in fuel costs.

"Northwest enjoyed considerable success in 2000 but we also experienced great challenges," said John Dasburg, president and chief executive. "We carried more passengers, did more flying and operated more aircraft than at any point in our history."

Among the challenges were contentious labor negotiations with its 10,000 mechanics and cleaners. The company accused members of the Aircraft Mechanics Fraternal Association of a work slowdown that resulted in flight delays and cancellations from before Thanksgiving through New Year's.

Delta Air Lines

Financially stung by poor weather, expensive fuel and unavailable pilots, Delta Air Lines earned $18 million, or 12 cents per share for the three months ended Dec. 31 , compared with $348 million, or $2.48 per share in the year-ago period.

Excluding one-time items, Delta earned $79 million, or 60 cents per share; it earned $171 million or $1.22 per share in the year-ago period.

The results for the quarter ending Dec. 31 were in line with Delta's revised forecast of 55 cents to 65 cents per share, issued earlier this month, but fell short of the 62 cents per share consensus of analysts surveyed by First Call/Thomson Financial.

The nation's third-biggest carrier has struggled to staff flights since November, when some of its 9,500 pilots stopped requesting overtime because of a contract dispute. That has prompted Delta to cancel thousands of flights, including nearly 4,000 last month, the company said.

Quarterly revenue rose 9 percent to $4.02 billion, up from $3.68 billion in the same period of 1999.

The airline said the pilots' job action, coupled with severe winter weather in many parts of the country, cut operating revenue by $84 million, or 40 cents per share.

In a conference call with analysts, Delta Chairman Leo Mullin said he's confident the company will strike a new deal with the pilots.

"I really do think that all of this will come together in a rapid way as we come closer to the deadlines," Mullin said. "I think that the progress continues to be good and constructive."

Both sides have agreed to negotiate until the end of next month, when pilots will ask federal mediators to release them from the talks if no contract is reached. Following a federally mandated 30-day cooling-off period, pilots have said they will then be prepared to strike April 1 without a contract.

Jet fuel costs rose 35 percent in the quarter, to 72 cents per gallon.

Sears

Sears, Roebuck and Co. saw fourth-quarter profits slide 40 percent as a disappointing holiday season, store closures and continued struggles with apparel sales ended a transition year on a down note.

Still, the results beat analysts' expectations.

The nation's fourth-biggest retailer, which earlier this month announced it was closing 89 underperforming stores and laying off 2,400 employees, said the first half of 2001 will be difficult as it copes with an economic slowdown.

Sears' net profit for the quarter ended Dec. 30 fell to $442 million, or $1.32 per shares, compared with $740 million, or $1.98 per share in the year-ago quarter.

Excluding a one-time charge of $197 million primarily from the store closures, Sears reported earnings for the quarter of $639 million, or $1.91 a share. Wall Street analysts surveyed by First Call/Thomson Financial had estimated earnings at $1.87 per share.

Revenues rose 2 percent to $12.37 billion from $12.09 billion despite a 5 percent decline in credit revenues, which Sears blamed on lower Sears Card balances. Sales of appliances, sporting goods, electronics, and lawn and garden items all posted gains.

New Chairman and Chief Executive Alan Lacy, who replaced Arthur Martinez last fall, called the results from his first quarter in charge disappointing despite another strong showing in the Sears credit business he formerly headed.

Lacy has had no immediate luck shaking Sears' longtime bugaboo: lackluster clothing sales in the face of competition from discount retailers such as Kohl's, Target and J.C. Penney.

Union Pacific

Union Pacific Corp.'s profit before a charge fell 5 percent in the fourth quarter, and the parent of the nation's largest railroad blamed growing signs of an economic downturn and rising fuel costs.

The company said Thursday it earned $229 million, or 90 cents per share, before a charge for employee severance for the quarter ended Dec. 31, compared to $242 million, or 95 cents per share, during the same period in 1999.

Those figures exclude an after-tax charge of $72 million, or 27 cents a share, because of thousands of recent job cuts.

Revenue rose to $2.95 billion from $2.86 billion a year ago.

Union Pacific announced a month ago that it planned to cut 2,000 jobs by the end of February because of a slowing economy, high fuel prices and harsh winter weather. At the time, the company said it was going to miss its fourth-quarter earnings expectations of more than 93 cents per share.

The reported results matched Wall Street's lowered expectations. The planned job cuts were in addition to 4,638 seasonal winter layoffs and 1,600 jobs eliminated since August as a result of the railroad's 1995 merger with Southern Pacific Rail Corp.

One improvement in the quarterly earnings was the turnaround of Overnite Transportation, the corporation's less-than-truckload carrier. Overnite's fourth-quarter operating income was at $16 million compared to a loss of $13 million in 1999. Revenue rose 6 percent to $274 million.

archive