GTE Reports 11% Consolidated Operating Income Growth and Double-Digit Core EPS Growth in Third Quarter
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IRVING, Texas. -- GTE Corp. announced its third quarter 1998 financial results, reporting diluted earnings per share (EPS) from core operations (not including GTE's new data initiatives) of 95 cents on net income of $920 million, an increase of 10 percent over the same period of last year. This is the 13th consecutive quarter of double-digit core EPS growth.
During the quarter, consolidated revenues and sales increased to $6.48 billion, compared to $5.94 billion in the third quarter of 1997, an increase of 9 percent. Adjusted for unfavorable currency translation of GTE's Canadian operations, consolidated revenue for the quarter grew 10 percent.
Including the effects of the previously announced data initiatives, consolidated diluted EPS was 85 cents, a 6 cents, or 8 percent increase over the year-ago quarter. The 10 cents per share impact of the data initiatives this quarter compares to 7 cents in last year's third quarter.
GTE Chairman and CEO Charles R. Lee said, "As we move to complete our merger with Bell Atlantic, GTE is working from a position of strength as evidenced by our financial results. We continue to meet our objectives for profitable growth. Our EPS of 85 cents in the third quarter is the highest since we launched our data initiatives in the second quarter of 1997, and we expect the dilutive impact of these activities to continue to subside going into the future."
GTE's consolidated revenues in the third quarter grew $540 million over the same period last year. Major contributors to this quarter's revenue growth include:
- Domestic access lines increased by 1.6 million, or 8 percent, including 5 percent growth in switched lines;
- Domestic access minutes of use grew by 2.4 billion, or 12 percent;
- Revenue from enhanced services such as CentraNet, vertical services, voice mail and CyberPOPSM grew $109 million, or 28 percent;
- Long-distance revenue grew $63 million, or 66 percent;
- Long-distance minutes of use surpassed 1 billion for the quarter, representing growth of 67 percent;
- Internetworking data revenues grew to $202 million in the current quarter vs. $127 million in the year-ago quarter, a growth rate of approximately 60 percent;
- Additional domestic customer activity:
over last 12 months
as of 9/30/98
Dial-up Internet access
- International revenue grew by $79 million, or 11 percent, which is net of a $64 million reduction due to unfavorable foreign exchange rates.
These volume improvements, coupled with growth from integration and consulting services as well as equipment sales, more than offset the expected continuing revenue erosion in the local toll calling markets (intraLATA).
Consolidated operating income in the third quarter was $163 million higher than in the year-ago quarter, generating 11 percent growth. Even as GTE continued to make critical investments targeted at high-growth segments of the markets, consolidated operating income reached $1.65 billion in the third quarter compared to $1.49 billion in the year-ago quarter.
The current quarter increase primarily resulted from domestic and international core revenue growth as well as continuing productivity enhancements. The domestic wireless business generated $37 million of operating income growth from improved revenue and cost performance. Partially offsetting these increases were continuing investments in new growth opportunities, including start-up costs in our competitive local exchange company (CLEC), the data initiatives and customer acquisition in the long-distance and digital PCS wireless markets.
Mr. Lee said, "GTE continues to drive its strategies with a unique and comprehensive array of capabilities that customers want, including: the industry's most complete bundle of telecommunications services; a robust and rapidly expanding data business specializing in value-added Internet solutions; a national, 17,000-mile, state-of-the-art fiber optic network, which is more than one-half operational and will be complete next year; a broad-based footprint supported by a fast-moving national sales, service and marketing operation; and international operations on five continents from which GTE can selectively grow its global presence.
"As a result, GTE is experiencing strong core business growth in key operational measures, such as access lines and minutes of use. We intend to continue investing in high-growth opportunities that complement our strategies while we capitalize on our existing investments."
For the quarter, GTE increased revenues in its total domestic operations by $444 million, or 9 percent; operating income by $111 million, or 9 percent; and operating cash flow by $107 million, or 5 percent, over the prior year quarter.
Domestic wireline operations revenue grew $309 million, or 8 percent, driven by
8 percent growth in access lines. Access line growth included 463,000 residential lines, 492,000 business lines and 673,000 special lines. Since the Telecommunications Act was passed in 1996, GTE has lost just under 60,000 of its 22.7 million lines to resale by other companies. GTE leads the industry with virtually all of its local access lines supported by digital switching, providing customers with higher-quality voice service, and more robust and accurate data communications.
Enhanced services such as call waiting and Caller ID, CentraNet
, voice mail and CyberPOP contributed $109 million of revenue growth to the wireline results. GTE continues to offer new products and services, including one of the largest deployments of ADSL. Currently, ADSL service is offered in 15 states and deployed in 200 central offices. By year-end, GTE expects to have ADSL service deployed in more than 300 central offices in portions of 16 states. Further, GTE currently has agreements with 46 ISPs to resell ADSL service. Among ADSL's major benefits is its ability to significantly increase connection speed to the Internet beyond conventional modems.
The long-distance business generated revenue growth of $63 million, or 66 percent, resulting from a 71 percent increase in the number of customers, including 272,000 net customer adds in the current quarter. Additional revenue growth came from video services, which exceeded the 100,000 customer milestone during the quarter. In addition, GTE's CLEC operation added over 70,000 new customers this year, and is experiencing an increase in revenues per customer due to the bundling of wireless, paging and Internet services. Directory services contributed $59 million of growth to the domestic operation, partially due to the timing of the publication of certain directories.
GTE Internetworking, providing data revenue from fast-growing web hosting and IP-based services and the more stable consulting-services business, generated revenues of $202 million, contributing $75 million to the overall growth of GTE's domestic results. This increase does not include revenue growth of $53 million, or 30 percent, from traditional network data businesses, such as T-1 connections and ISDN dedicated access, which continue to be reflected in the wireline operations.
GTE has signed contracts with several personal computer manufacturers that enable customers to easily sign up for GTE's dial-up Internet access, GTE.net. During the quarter, this contributed to GTE becoming one of the nation's largest providers of dial-up Internet service with a total subscriber base of over 600,000 customers.
Also during the quarter, domestic wireless service revenues were $685 million, an increase of $44 million, or 7 percent, from the year-ago quarter. The number of GTE wireless subscribers increased 9 percent, but significant competition led to a 4 percent reduction in revenues per subscriber per month from the third quarter of 1997. To counteract the impact of these revenue reductions, GTE implemented cost reduction initiatives, helping to generate $42 million in additional operating cash flow. Revenues per subscriber have held steady since the fourth quarter of 1997 as a result of on-going proactive efforts focusing on a value-based marketing strategy.
Revenue from GTE Government Systems increased $19 million from the year-ago quarter. During the quarter, GTE won a contract valued at $110 million to renovate the network infrastructure at the Pentagon, one of the world's largest office buildings. In addition, indicative of the talents at GTE Government Systems, is a new product that will be channeled through brokerage houses. The GTE Wireless Trader is an online investment tool that allows traders to execute transactions, receive alerts and obtain real-time stock quotes while managing their portfolios from browser-equipped portable "smart" phones.
Despite unfavorable exchange rates, consolidated international operations contributed $825 million to third quarter revenues, achieving growth of $79 million, or 11 percent, over the year-ago quarter. Without the impact of the exchange rate movements, revenue growth would have been $143 million, or 19 percent. The growth
was generated by favorable rate rebalancing, wireless customer growth of 22 percent, access line growth of 3 percent, as well as new long-distance revenue settlement arrangements in GTE's Canadian operations. International net income in the third quarter was $114 million, 21 percent higher than the year-ago quarter, reflecting strong volume growth including significant customer expansion in the Canadian and Latin American operations. Wireless customers from unconsolidated investments more than tripled over the last 12 months, providing a solid base for current and prospective results.
Mr. Lee said, "Our international operations have become a key contributor to GTE's overall EPS growth, and we see significant opportunity for further expansion. For example, in the third quarter we were successful in our bid to purchase the Puerto Rico Telephone Company. Investments such as this position GTE for future profitable growth."
With revenues during the past 12 months of $25 billion, GTE is one of the world's largest telecommunications companies and a leading provider of integrated telecommunications services. In the United States, GTE provides local service in 28 states and wireless service in 17 states; nationwide long-distance service and internetworking services ranging from dial-up Internet access for residential and small business consumers to Web-based applications for Fortune 500 companies; as well as video service in selected markets.
Outside the United States, the company serves 9 million telecommunications customers. In addition, GTE is also a leader in government and defense communications systems and equipment, directories and telecommunications-based information services, and aircraft-passenger telecommunications.
Note: All references noted above to earnings per share (EPS) reflect diluted earnings per share.
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