WorldCom lowers guidance, restructures accounting

WorldCom has changed its accounting practices concerning an overseas holding and lowered its earnings guidance for the remainder of the year.

According to a press release, WorldCom will no longer consolidate the operations of Embrapar, a Brazilian communications provider that is 19% owned by WorldCom.

The move was made because the consolidation of Embrapar’s financial results was causing confusion in the marketplace.

WorldCom’s ownership in Embrapar has been restructured through the establishment of an endowment of Embratel 21, a multimedia digital library project in Brazil and a subsidiary of Embratel.

Along with the announced restructuring, WorldCom lowered its earnings guidance for the full year 2001. While the second quarter guidance of 28 cents to 29 cents earnings per share (EPS) remains unchanged, WorldCom now expects to post a full year EPS of $1.05 to $1.10, down from the $1.25 to $1.35 it had been predicting.

The change reflects the deconsolidation of Embrapar as well as the company’s May debt offering, the impact of the Intermedia/Digex acquisition, lower than expected Embratel results and increased depreciation.

Despite the move to simplify its accounting practices, at least one analyst put out a bearish report on the company.

“We are reinstating our hold rating on WCOM tracker noting that despite all the changes to the accounting treatment at WCOM … fundamentals at the core continue to decelerate as evidenced by the core’s 13% year over year revenue growth in 1Q versus our current forecast of 12.3% for 2Q,” said a report from Dan Reingold at Credit Suisse First Boston.