Alltel Eyes Changing Future After Record Quarter, Year

Alltel Corp.’s fourth-quarter and 2001 earnings made noise on Wall Street, at least for a day. The subsequent news that CEO Joe Ford will retire July 1 to make way for the ascension of company president and son Scott Ford added to the stir.

But Alltel’s amicable silence leading up to its Jan. 24 earnings announcement was the most fitting wrap-up for a company that in the past year has, to paraphrase Kipling, kept its head while all about were losing theirs.

Strong fourth quarter and record annual earnings per share sent the telecommunication company’s stock, which closed at $56.07 on Jan. 23, hurtling as high as $58.50 by midday Jan. 24. By close of the market Jan. 30, it had already dipped back down to $54.38.

Alltel’s earnings per share of $2.84 for 2001 were up 4 percent from $2.72 in 2000. Its gross revenue for last year was $7.6 billion, a 5 percent increase over 2000, and net income was up 3 percent year-over-year to $890 million.

Despite the volatility of U.S. markets in 2001 as the economy slumped into recession and reeled from the effects, actual and perceived, of the September terrorist attacks, Alltel has remained steady on the balance sheet and on the trading floor.

The stock opened and closed virtually even last year, ending the year only 27 cents lower than the $62 a share at which it started 2001.

Along with the improved earnings, the company purchased wireline properties and information services providers in several transactions during the year. Altogether, a workmanlike performance.

“That’s the key to success,” said Andrew Moreau, Alltel’s director of corporate communications. “Every day you just keep working hard to make it happen.”

Company executives declined to be interviewed prior to the earnings announcement. But the firm’s additional financial highlights show they have plenty to crow about now:

• Communications revenues were $6.1 billion, an 8 percent increase over 2000, with a 42 percent cash-flow margin and a 26 percent operating-income margin.

• Wireless revenues were $3.8 billion, an 8 percent increase over 2000. The company also reached its goal of extending advanced digital services to 70 percent of its wireless customer base.

• 4Q net income was $235 million, an increase of 20 percent, or 75 cents per share compared to 62 cents for 2000’s fourth quarter.

• 4Q revenues for emerging businesses were $119 million, an 11 percent increase.

• 4Q total revenues rose to $1.93 billion from $1.9 billion.

Regulatory Action

While most Alltel news in the past year has concerned the acquisition (or attempted acquisition) of wireline and data services operations, the company’s efforts to shape government policy in the wireless arena may prove crucial to its success in the near future.

Wireless markets across the country have become chaotic and marginally profitable, due in part to federal regulations limiting the amount of wireless spectrum a carrier can control in each market and capping the total spectrum available to commercial wireless companies.

The result has been markets characterized by multiple carriers chasing an increasingly cramped available spectrum.

Alltel, along with the rest of the wireless industry, has pushed for changes in the FCC rules, and a Nov. 8 order by the Commission mandated additional spectrum for the industry by 2003.

Federal regulatory changes don’t occur in a vacuum, and Alltel has maintained a piece of the Washington action consistently over the years.

“We have, in Washington, seven people,” Moreau said. “We’ve had a presence there for more than a decade. The focus of that office is on industry relations,” coordinating efforts with nationwide trade groups to assure that Alltel works with its competitors to “speak with one voice” on shared public policy concerns.

“They also keep up with events and issues at the FCC,” Moreau said. “We have people on the ground there keeping up with that.”

The new regulations are a step in the right direction, at least for companies such as Alltel and could lead to aggressive moves by larger wireless carriers, resulting in a new round of industry consolidation.

“We were in favor of spectrum-cap relief,” Moreau said. “We believe that … will accelerate consolidation in the industry,” an occurrence Alltel believes it can take advantage of.

“We are in a strong position right now,” Moreau said. “We’re going to continue to examine all our options.”

Consolidation in the wireless industry also could mean that Alltel, which has grown continuously through acquisitions since its 1982 debut as a publicly traded company, may be a target itself this time. Though one of Arkansas’ largest companies and an international player, Alltel is just a medium-sized fish in the telecommunications industry.

Alltel has shown no hesitation at acquiring operations in various sectors of the communications industry if they are available for the right offer. Alltel executives have insisted all along that the company is prepared to make deals that add value to Alltel, regardless of whether the business is wireline, wireless or other information services.

Ringing True

When Moreau said last week that acquisitions have “been across the board … that’s really no shift from what we’ve been saying the past year,” it’s just the latest in a series of similar statements that begin to ring true, even given the company’s obvious pursuit of wireline operations recently.

A Goldman Sachs November report said Alltel management appeared to covet wireline operations only because the best value rested there, a theory that fits such diverse transactions as the company’s $1.9 billion purchase of 600,000 wireline customers in Kentucky from Verizon Communications Inc. and Alltel’s latest buy, the Little Rock-based Dash automated teller network, to be added to the company’s Information Services division.

The other common factor in Alltel deals has been the caution with which they are executed.

“We’d like to continue to make acquisitions where the price is reasonable,” President Scott Ford told investors on Jan. 7, according to a Reuters report.

The one exception, both to the quiet growth and cautious offers typical of Alltel in 2001, was the company’s still-open, $5.9 billion unsolicited bid for Louisiana rival CenturyTel Inc. Ford has led a vigorous, sometimes rancorous courtship of the smaller company, ignoring the CenturyTel board’s repeated rejections and appealing directly to stockholders.

Most analysts and some prominent CenturyTel stockholders have agreed that the deal would be a plus for both companies, but it still appears to be an unlikely union five months after the initial offer.

Most, but Not All

Not all analysts buy into Alltel’s vision.

TD Waterhouse’s Second Opinion Weekly advises investors to “avoid the stock.” Second Opinion’s highly technical indicators add up to a bearish outlook for the stock. Three of four moving averages tracked — the 10-day, 21-day and 50-day — point down, with only the 200-day average trending up. Alltel’s up and down volume pattern “indicates that the stock is under distribution,” the Jan. 14 analysis said, while investors should note price resistance to the stock at $62.65 a share.

But nine of 17 analysts surveyed by ThomsonFN/First Call rate the stock “buy” or “strong buy.” The other eight rate Alltel “hold.”