WorldCom axes 6,000

(Telephony) Long-distance provider WorldCom laid off about 7% of its worldwide workforce, or 6,000 employees, in an effort to cut costs ahead of its upcoming restructuring. Unconfirmed reports said the cuts came from all parts of the company, not just from the lagging long-distance business. WorldCom was not available for immediate comment.

“[The cuts] were not unexpected,” said David Burks, analyst at J.B. Hilliard, W.L. Lyons. “There had been speculation that the numbers might, in fact, be larger.” Rumors had company cutting as many as 12,000 positions, according to Burks. WorldCom employs about 90,000 people worldwide, 77,000 of those domestically.

Job cuts are rare in WorldCom’s short history. The last time the company reduced its headcount was in 1998, when WorldCom acquired MCI Communications. But declining revenues in WorldCom’s consumer and business voice services are forcing the company to reduce its cost structure. In its latest quarterly earnings report, WorldCom reported a 44% drop in profits amid continuing declines in revenue for consumer long distance and business voice services.

“More than anything, [the layoffs] reflect the difficult and challenging nature of WorldCom’s business and where the telecom industry is these days,” Burks said. “It’s not as if WorldCom is taking this action in a vacuum.”

Yesterday, credit rating agency Standard & Poor’s cut WorldCom’s long-term credit and senior unsecured debt ratings to “BBB-plus” from “A-minus.” Standard & Poor’s cited a “heightened” risk profile from increasing competition and pricing pressure in the voice and data markets. As of December 31, 2000, WorldCom’s total debt was $25 billion, according to Standard & Poor’s.

“While there’s a fair amount of leverage, the balance sheet still looks OK,” Burks said. “Interest expense affects the bottom line, so it’s something that bears watching.”

In November, WorldCom announced a restructuring plan designed to separate its consumer and wholesale long distance businesses and dial-up Internet access businesses from its data, Internet and Web-hosting units. The divided WorldCom will trade as separate tracking stocks.

For 2001, WorldCom expects revenue growth of 12% to 15% and cash earnings between $1.25 and $1.35 per share.