Williams reports bigger loss, capex cuts

Williams Communications reported a wider loss in the third quarter and weaker than expected revenue growth, but the company managed to report a smattering of good news, including a major contract with aerospace concern Boeing.

Williams recorded a net loss of $272.3 million, or 55¢ per share, compared with a loss of $149.9 million, or 32¢ per share, in the year-ago period. The net loss included a one-time gain of $223.7 million from the company’s purchase of senior redeemable notes and a $240.4 million charge related to equipment inventory losses, equity investments, suspended capital projects and goodwill.

Excluding one-time items, Williams reported a loss of 52¢ per share. On average, analysts were expecting an operating loss of 55¢ per share, according to Thomson Financial/First Call.

Williams revenues increased 42% to $297.8 million, driven by a network-services revenue increase of 52%, to $271.1 million. Network-services revenue increased 6% sequentially. The revenue growth was slightly lower than many analysts’ estimates. Although Williams said it has expanded its customer base, SBC Communications still accounts for one-third of its revenue.

For the fourth quarter, Williams projected sequential network services revenue growth of 10% to 20%. It also revised upward estimates on network services EBITDA to between breakeven and a $10 million loss. By the end of 2001, Williams expects network services to be operating EBITDA positive on a run-rate basis.

During its earnings call, Williams also announced a 20-year, $267 million agreement with The Boeing Company. Executives did not provide details how much of the contract is for network construction and how much for transport and other services.

Capital expenditures during the third quarter were $311 million, but Williams said it will reduce spending during 2002. Williams will slash its capital spending by more than half next year, compared with 2001’s expected $1.5 billion total. Because Williams has finished building its network, it will “deploy additional capital in a success-based manner, just in time to meet capacity needs,” said Howard Janzen, chairman and CEO of Williams.

The company estimates it will spend less than $500 million on capital expenses, but even that number is at the high end of the projected range, Janzen said. He estimated Williams needs to spend only about $200 million to maintain its network next year, but expenditures could be minimal because the network is new.

“Next year, [capital expenditures] could be something that approaches zero,” Janzen said.

Dan Reingold, analyst at Credit Suisse First Boston, maintained his “hold” rating on Williams’ shares, citing slowing demand, an expectation of continued competitive pressures in the wholesale capacity market and the uncertainty regarding Williams’ funding situation beyond 2003.

As of Sept. 30, Williams had $1.4 billion in cash and an undrawn bank-credit facility of $525 million. During the quarter, the company bought $550 million of bonds at about 43¢ on the dollar, which will enable Williams to save about $60 million in interest per year, Reingold said.

Williams also amended a credit facility that required it to issue an additional $225 million in debt and equity by the end of 2001. Williams now has until July 1, 2003, to raise the funds.

Separately, Williams announced the purchase of CoreExpress, a fiber network and IP services provider. The acquisition will enable Williams to accelerate the development of IP services by 18 months, executives said.