Market briefing---Matt (slow)
Kraft---Carmen (fast)
Outlook for 2004
earthlink---betty, garry---chief executive officer
welcome to bloomberg’s “world financial report.” i’m matt nesto. as we said, kraft announced plans to lay off about 6,000 workers over the next three years. it also said that profit for fell for the second straight quarter. the largest u.s. food company says net profit fell 7% after it spent more to market products. carmen roberts has been tracking kraft and joins us now with the very latest. carmen?
>> matt, as several analysts predicted, the maker of oreo cookies and ritz crackers is downsizing to be more competitive. the company announced majoring restructuring when it released fourth-quarter earnings less than an hour ago. the three-year plan includes cutting 6 then jobs, closing 20 plants and taking a restructuring charge of $1.2 billion pretax dollars. with those changes, kraft. expects to generate nearly $$500 million by 2006. as one money manager tells us, cutting jobs is the right thing to do. and chief executive roger deromedi said in his press release that while kraft’s fourth-quarter results were in line with the company’s expectations, the company is not satisfied with its performance. profit fell for the second straight quarter and net income dropped to $669 million, or 50 cents a share, in line with estimates. sales rose 6% to $8.3 billion. kraft says that restructuring charge of 30 cents a share would reduce 2004 profit to $1.63 to $1.70 a share. c.e.o. roger deromedi said that after the company is past 2004, he’s confident the restructure will enable kraft to deliver stable e.p.s. growth in 6% to 9%. shares are rising in extended trading. before the confirmation of the job cuts, shares were down in the day’s trading. and morgan stanley analyst adelman wrote that all of the efforts are intended to position kraft for a stronger performance in 2005 and believes that altria group, a large owner of kraft, may spin the rest of the company off next year. it is important that they get the company back on sure footing.
>> no question about. it. thank you, carmen roberts. looking at how the numbers on wall street finished today, always good to know, especially when you see the s&p 500 posting its biggest one-day drop in about three months. down 1% here today. that’s interesting in and of itself that it’s been throe months since we’ve seen a 1% drop in this marketplace. and the nasdaq, the worst of them all, down 1.75% here today. volume is above average, 1.8 billion, about 1/3 above the average daily volume in the nyse for the past six months. and nasdaq volume strong there, as well, approaching two billion. in the broader indexes, nyse -- amex down. and the wilshire 5000 down .9%. on to bonds we go, not surprising, on the up here today, turning around yesterday’s two-day slump. 10- five- higher and similar moves for the three-year and two-year notes. in the currency markets, the euro and pound both trading lower so the dollar up there and the dollar buying more yen, according to that quote. so dollar up across the board against its rivals. earthlink, third largest u.s. internet access service, reports a profit in the fourth quarter was up to seven cents versus a loss a year ago. the atlanta-based company earned seven cents last quarter on revenues of $348.6 million. we’re joined now by the c.e.o., garry betty, in atlanta where they’re headquartersed and giving us an outlook for 2004. talk to me about your subscribers because in this internet service provider business, it is often about the subscriber growth. what was your actual organic subscriber growth when you back out the growth through acquisitions?%
>> we had just at 200,000 net subscriber growth in the fourth quarter, strongest growth we’ve posted since the first quarter of 2000. in large part do you to great performance with people p.c., continued strong growth in broadband and smaller loss of premium narrow band subscribers in the quarter.
>> and yet, even though you’re having the best growth since 2000, the stock down 10% today. a real disappointment, the worst day for earthlink shares we’ve seen in almost a year and a half. what did wall street get wrong?
>> i think they were reacting to guidance for 2004, which had modest improvements in annual revenues but if you get under the covers of what we tried to communicate, our exiting revenues in the service arena will be higher on a run-rate basis than anything we’ve had in the last couple of years so we’re coming off two quarters of declining revenues and posted a little bit of gain in q-4 and that revenue growth. accelerate throughout the rest of the year, although it will be at a slower rate than the overall growth in number of customers.
>> 7-9 analysts that follow your company rate it a hold or sell. what will you do to win back the affection of wall street?
>> all we can do is post results. we came off a fabulous 2003. our profits, ebitda up 127% and went gaap positive the last two quarters, showing greater subscriber growth than we have in some time. we hit all of our targets, consolidated gross margins up 550 basis points and as we post results for 2004 you’ll see the guidance numbers and targets that people set will change appropriately. i’m confident that this year will see a similar improvement of our stock price as we saw throughout 2003.
>> i’m told that part of the problem with wall street is that your revenue growth or lack thereof isn’t impressing people. in fact you’re forecasting this year revenues of $1.41 to $1.44 billion, which is close to flat and slower than your subscriber growth.
>> that’s right.
>> that’s one area of disappointment you have to manage, no?
>> yeah, that’s right. but, for example, we exited the hardware business with people p.c. we had been selling p.c.’s with internet service bundled for a price and we stopped doing that at the end of december. that was $15 million of revenue last year. we stopped selling internet appliances through a mail station which added another their 10 million in hardware revenue which basically we make no gross margin on so the focus for us is increasing our service revenues and i’m confident you’ll see them increase sequentially throughout the year and we’ll be on a much higher run rate exiting 2004 and ultimately that’s where the additional leverage will come for us to show earnings growth in the future.
>> your press release said were you would grow revenues due to more aggressive promotional price offers. what can we expect from earthlink as far as aggressive promotional price offers are concerned?
>> you’ve seen us aggressive in the premium narrow band front. our primary offer is six-month, half price offer for new customers. we have used discounts to help get our narrow band customers to go off the fence to sign up to a broadband platform, six months for $29.95 or three months for $29.95 and i think you’ll continue to see us get aggressive regionally to ensure we can continue to show growth in these important areas.
>> 15 seconds left, gary. your churn rate is on the rise. what will you do about that?
>> i think it’s going to go up a little bit in q-1 and decline over the rest of the year and we’ll exit the year somewhere at 4% or less. i don’t think that will be an issue for earthlink or its shareholders.
>> we appreciate your time and a pleasure to have you on and we appreciate your forecasts and joining us today. our thanks to garry betty, c.e.o. of earthlink. amazon.com produces the best quarter since chief executive jeff bezos founded it a decade ago.
