Global Crossing Stock Falls 14% on Loss Report
Investors sent shares of Global Crossing Ltd. tumbling more than 14% Friday after the fast-growing telecommunications firm said its fourth-quarter losses more than tripled amid an aggressive expansion of its worldwide fiber-optic network.
Analysts attributed the sharp fall to confusion over whether the company met Wall Street’s expectations, in part because of how it melded recent acquisitions, and to Global Crossing’s decision to change the way it reports revenue under future telecommunications contracts.
The company, which restated earlier results to reflect its acquisitions, reported a loss of $184 million, or 24 cents per share, for the final quarter of 1999, compared with a loss of $54 million, or 7 cents a share, in the year-ago quarter.
Global Crossing executives said Friday that its 20-cent per share loss from continuing operations beat analysts’ estimates of a 22-cent deficit for the quarter. But because of the company’s complex accounting treatment of its acquisitions, there was some confusion over whether the 24-cent figure was more applicable.
Revenue grew only 6% to $1.1 billion, also slower than analysts had expected from a company that made three acquisitions over the past year. Bermuda-based Global Crossing is a major U.S. long-distance carrier with an extensive international communications network and executive offices in Beverly Hills. In 1999, the company bought U.S. phone company Frontier Communications Corp. and the UK’s Racal Telecom, as well as the undersea cable construction firm Global Marine Systems.
Global Crossing’s shares got hammered along with much of the market Friday, falling $8.69, to $52.38, as nearly 23 million shares changed hands in heavy Nasdaq trading.
The company, which sells space on its fiber network as a wholesaler to other phone companies, has typically sold the capacity through long-term contracts, with the revenue booked when service starts. A combination of new accounting rules and a shift to shorter-term, more flexible capacity contracts will cause Global Crossing to spread out the revenue over each contract’s term--a shift that will lower sales figures for this year.
“Although it’s just an accounting change, and it will not affect cash flow or (operating earnings), the result will be lower reported revenue,” said Matthew Janiga, an analyst with Lazard Freres & Co. “Revenue could come down $300 million to $400 million for this year . . . and the complications of the accounting changes adds to the problem.”
Global Crossing reported an annual loss of $635 million, or 83 cents per share, for all of 1999, compared to a loss of $397 million, or 56 cents a share for 1998. Annual sales rose to $4.1 billion, up from $3.6 billion a year ago.
In addition to its financial report, Global Crossing discussed a new deal with Level 3 Communications that was announced late Thursday. Terms of the transaction were not disclosed.
The company said it will be a co-builder in Level 3’s trans-Atlantic fiber-optic network project now under construction, and will own two of the four planned pairs of fiber lines. Global Crossing, which already operates one cable along that route, said the deal gives Level 3 additional space on Global Crossing’s existing lines. In return, Global Crossing gets quick access to expanded capacity and allows the company to postpone construction of a planned second Atlantic Crossing network.
Analyst Janiga noted that Global Crossing’s stock drop comes after a strong run-up over the last year. He gives the firm’s shares an “outperform” rating, and expects the stock to get a boost as the company moves toward public stock offerings this year for its expanding Internet hosting business, GlobalCenter Inc., and its Asia Global Crossing venture.
