McLeodUSA announces layoffs

Shares of McLeodUSA shed more than 15% of their value by afternoon trading in the wake of an announced job cut and a reduction in capital spending by the CLEC. Since May 2, the day before the company announced a lowered forecast, McLeodUSA shares are down 44%.

McLeodUSA said it plans to reduce its headcount by 500 to 600 people, or 5% of its work force. The affected employees were notified beginning Wednesday. About one-third of the cuts will come from the CLEC’s Cedar Rapids, Iowa, offices, where the company is headquartered.

McLeodUSA expects to record a one-time charge of $6 million to $8 million in the second quarter but says the charge will be “more than offset” by one-time gains in the period. As part of the company’s cash-management efforts, it will reduce capital construction spending by $300 million through 2002.

McLeodUSA reiterated 2001 guidance, forecasting yearlong revenue in the range of $1.95 billion to $2 billion, a 40% increase compared to last year. Earlier projections pegged revenue at $2.1 billion. The company’s earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to hit $150 million to $175 million.

McLeodUSA has about $1 billion in cash and equivalents on its books and expects to achieve free cash flow in 2003. Merrill Lynch analyst Ken Hoexter downgraded McLeodUSA to “neutral” from “accumulate” on the news.