Nortel Issues Major Profit Warning; Accelerates Job Cuts

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Nortel issues major profit warning; accelerates job cuts WebPosted Thu Feb 15 18:35:54 2001

TORONTO - Nortel has issued a surprise profit warning for the first quarter of fiscal 2001 and dramatically slashed its revenue and earnings estimates for the year, saying it now thinks the slowdown in the U.S. economy will last all year. It will also cut an additional 6,000 jobs worldwide this year.

Nortel said it expects to lose 4 cents US per share in the first quarter. That's a huge comedown from the consensus estimate of analysts polled by First Call/Thomson Financial (and Nortel itself), who had forecast a profit of 16 cents US per share.

"While we previously noted that economic uncertainties and capital constraints were impacting our outlook, we are now seeing a faster and more severe economic downturn in the United States which we now expect will result in a slower overall market growth of approximately 10 per cent in 2001," Nortel CEO John Roth said in a release.

Nortel does about two-thirds of its business in the U.S. In the conference call late Thursday, Nortel said it was confident its business outlook outside the U.S. would remain on track.

Roth now estimates revenues in Q1 of $6.3 billion US. The market had been expecting closer to $8 billion US. Nortel had estimated Q1 revenues at $8.1 billion US to $8.3 billion US.

Back in December, Roth had said he expected Nortel's anticipated growth in revenues and earnings in 2001 to be "in the 30 to 35 per cent range." As recently as four weeks ago, Roth was sticking to a 30 per cent growth estimate for the year. Not any more.

"We now expect the U.S. market slowdown to continue well into the fourth quarter of 2001."

Nortel said the slowdown is now prompting it to cut 10,000 jobs by the end of the year. About 6,000 of those job cuts have already been made.

In January, Nortel announced it would cut about 1,000 jobs in Canada and 3,000 more worldwide.

Shares in Nortel began plunging at around 3 p.m. ET Thursday, about an hour before the earnings warning was issued. A huge institutional trade of 850,000 shares crossed the NYSE board and the stock proceeded to sell off for much of the following hour.

Nortel shares closed in Toronto at $46.15, up $1.14 on the day. In after-hours trading in the United States, Nortel stock was being hammered, changing hands at $23 US, down $6.55 US, a plunge of more than 20 per cent.

Nortel represents about 20 per cent of the TSE 300. If Nortel begins trading Friday morning off 20 per cent, it would lead to a decline in the TSE 300 of about 350 points, all other things being equal. The TSE 300 closed Thursday at 8967.30.

-- Rachel Gibson (rgibson@hotmail.com), February 15, 2001

Answers

snip....While we previously noted that economic uncertainties and capital constraints were impacting our outlook, we are now seeing a faster and more severe economic downturn in the United States..... end snip. I wonder if Greenspan spoke with this group before recently announcing no recession in sight speech...

-- kevin (ktross@mailcity.com), February 16, 2001.

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