WorldCom profit falls but company says finances are solid

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Posted 11:53AM on Thursday, February 7, 2002

CLINTON, Miss. - Tough market conditions caused a significant drop in profits at WorldCom Inc. in the fourth quarter, falling short of Wall Street's expectations, the company reported Thursday. The telecommunications giant also significantly reduced its 2002 revenue-growth and profit expectations. But executives were upbeat in a conference call with investors and analysts and said the company's financial foundation is solid. WorldCom shares, which have been battered in recent weeks, rose nearly 15 percent in late morning trading. Net income for WorldCom Group for the three months ended Dec. 31 was $305 million, or 10 cents per share, a 48 percent decline from the year-ago quarter, when the company earned $585 million, or 20 cents per share. Excluding one-time charges and WorldCom's investment in the Brazilian telephone company Embratel, WorldCom earned $384 million, or 13 cents per share, in the fourth quarter. That was a penny less than the consensus forecast of Wall Street analysts surveyed by Thomson Financial/First Call. Revenue for the quarter fell about 10 percent to $5.3 billion from $5.9 billion last year. Concerns about the company's debt burden and fallout from the Enron scandal and related accounting practices have contributed to WorldCom's spiraling stock price in recent weeks. There also have been worries about chief executive Bernie Ebbers' ability to repay loans and the possibility he will have to sell millions of shares of WorldCom stock to cover those debts. WorldCom stock has lost some 50 percent of its value since the beginning of the year. In trading Thursday, the shares rose 99 cents to $7.68 on the New York Stock Exchange. Analysts said it was important for Ebbers to calm the fears of jittery investors Thursday, and he tried to do just that. At the opening of a conference call, Ebbers told investors and analysts, "For those of you expecting to hear a bunch of doom and gloom, you have the wrong call." Ebbers and other executives sought to dismiss concerns about WorldCom's accounting practices, debt load and cash flow. The company said WorldCom Group's debt declined by nearly $1 billion to $24.7 billion in the quarter, and it has access to more than $10 billion in cash and untapped lines of credit. "To question WorldCom's viability is utter nonsense," Ebbers said. "We still have the world's most extensive global network ... (and) we continue to lead the industry in revenue growth." The company said it now expects WorldCom Group's 2002 revenue to grow at a mid-single-digit percentage rate, as opposed to its forecast last fall of growth rates in the high single-digits or low double-digits. WorldCom Group's 2002 earnings are expected to be between 75 cents and 80 cents per share; analysts' consensus estimate for 2002 of 95 cents per share. In 2001, WorldCom Inc. completed a restructuring that created two, separately traded stocks. WorldCom Group includes the high-growth data, Internet and international businesses. The company's other division, MCI Group, is the high cash flow component that tracks its small business, long distance and wireless messaging services. MCI Group reported a fourth-quarter loss of $89 million, or 75 cents a share, compared with a profit of $125 million, or $1.09 a share, in the year-ago quarter. MCI Group revenue fell to $3.2 billion, a 16 percent decline. The company said it expects mid-teen percentage revenue declines in the first half of 2002 at MCI Group and low double-digit percentage revenue declines in the second half of the year. Shares of MCI fell $1.47, or 16 percent, to $7.59 on the Nasdaq Stock Market. "As with others in the industry, MCI Group was negatively impacted by a weak economy and the ongoing effects of wireless substitution," Ebbers said. The company said MCI Group ended 2001 with 1.5 million local customers and expects to double that number by year's end. For the year, WorldCom earned $1.4 billion, or 48 cents per share, down from profits of $22.8 billion, or 87 cents per share for all of 2000. Revenue fell to $21.3 billion from $22.8 billion and was short of analysts' $21.5 billion estimate. MCI Group posted a loss for the year of $23 million, or 20 cents per share, compared with a profit of $1.6 billion, or $13.52 per share, for all of 2000. Revenue fell 15 percent to $13.8 billion from $16.3 billion.