Deutsche Telekom Shares Drop After Profit Outlook Cut (Update1)
By Kenneth Wong
Jan. 29 (Bloomberg) -- Shares of Deutsche Telekom AG dropped as much as 6.5 percent after Europe's largest telephone company cut its profit forecast as competition in Germany increases and the dollar's decline reduces revenue in the U.S.
The stock fell as much as 92 cents to 13.25 euros, the biggest decline since Aug. 10, when the Bonn-based company also cut earnings forecasts. Adjusted earnings before interest, tax, depreciation and amortization will be about 19 billion euros ($24.5 billion) in 2007, from a November estimate of as much as 20.2 billion euros, Deutsche Telekom said yesterday.
The cut underscores the struggle of Chief Executive Officer Rene Obermann, who took over two months ago, to halt more than three years of decline in traditional phone sales as competitors such as Vodafone Group Plc's Arcor unit step up discounting. The 10 percent slide of the dollar against the euro last year slashed revenue from the T-Mobile USA unit, Deutsche Telekom's fastest- growing division.
``This is a material profit warning,'' said JPMorgan Chase & Co.'s London-based analyst Hannes Wittig, who rates the stock ``underweight.'' ``Any new CEO wants to start with a clean sheet. He wants people to understand that they need to be tight on spending.''
The shares traded at 13.53 euros as of 10:03 a.m. in Frankfurt, making them the leading decliner in the Dow Jones Europe Stoxx Telecommunications Index, the worst-performing sub- index today. France Telecom SA shares fell 2.3 percent and Royal KPN NV, the biggest Dutch phone company, dropped 3 percent.
``From a sector perspective, this is a timely reminder that we are not yet out of the woods after positive earnings momentum in recent months,'' UBS AG analyst David Brundish wrote in a note to clients. Investments banks including Bear Stearns Cos. and Lehman Brothers lifted their ratings on the sector this month.
Deutsche Telekom forecast ``moderate'' sales growth this year after 2006 revenue missed its own estimates.
The new forecast for 2007 adjusted Ebitda is 3.6 percent to 5.9 percent lower than the company's November estimate of between 19.7 billion euros and 20.2 billion euros. Earnings on that basis met the company's target of at least 19.2 billion euros in 2006, the company said, citing preliminary numbers.
The earnings forecast reduction of as much as 1.2 billion euros is made up of about 800 million euros for the fixed-line unit and 400 million euros for T-Mobile, Deutsche Telekom said.
Deutsche Telekom lost half a million traditional phone lines in Germany for a fourth consecutive quarter and ended 2006 with 33.2 million connections, 2 million fewer lines than a year earlier. More Germans are abandoning fixed lines altogether and make calls only on their mobile phones.
Joao Paulo Henriques