WorldCom Q3 earnings fall by half billion dollars

WorldCom reported lower profits and slower revenue growth for 2002 as business voice as well as wholesale voice and dial-up Internet service revenues saw marked declines.

WorldCom Inc.’s consolidated revenues for the third quarter were about $9.0 billion, essentially flat compared with last year, but earnings fell to $536 million from $1.34 billion in 2002.

Profits at WorldCom Group, the carrier’s data, corporate and international businesses, fell 41% to $460 million, or 16¢ per share, in line with the expectations of Wall Street analysts, according to First Call/Thomson Financial. Revenues for the group rose 12% to $5.5 billion, bolstered by a 22% increase in data and Internet services. International services revenue increased 19%, but business voice revenues declined 6% from the year-ago quarter.

MCI Group, the consumer, wholesale long distance and dial-up Internet access businesses, saw third quarter revenues drop to $33 million, or 28¢ per share, compared with $49 million, or 42¢ per share, in the comparable quarter of 2000. Revenues dropped to $3.5 billion from $4.2 billion last year.

“Our consumer unit performed very well this quarter, increasing revenues by $37 million sequentially through strong performances in transaction and local services, in spite of roadblocks thrown up by the RBOCs,” said a statement by Wayne E. Huyard, chief operating officer of MCI group. “We continue to face challenges in the wholesale voice, data and dial-up Internet sectors of our business with a combination of weak demand and pricing pressures.”

WorldCom Group’s full year 2001 guidance remains unchanged, although fourth quarter revenues are projected to decline 10%. The company projects 2001 revenues to increase between 12% and 15% and EBITDA to range between $7.8 billion and $8.3 billion. In 2002, revenue growth will slow to rates in the high single-digits to low double-digits and EBITDA will range between $8.4 billion and $8.9 billion.

MCI Group, which is being managed for cash profitability, expects to have declining but stabilizing sequential revenues going forward. Management said the unit would generate “sufficient cashflow to service its $2.40 annual dividend and allocated debt.”

The 2002 projections for consolidated WorldCom concerned some analysts and fostered speculation that a merger with an RBOC could be in the company’s best interests.

“Given the lower [2002] outlook, continued deceleration of data growth across the industry and permanent negative price and volume trends in voice [long distance], we continue to be concerned about WCOM being a virtual pure play in long distance, not a sustainable position in the long run given commoditization and competitive trends in that sub industry segment,” said a report by Dan Reingold, analyst at Credit Suisse First Boston.

On the company’s earnings call, CEO Bernard Ebbers addressed the topic of a potential acquisition by an RBOC. Ebbers said that such a deal would take three years to close, including regulatory approvals. “Such a long waiting period would likely result in significant business erosion for both parties while awaiting closing.” Reingold said.