WorldCom Says Sales Growth to Slow
Long-distance telecom titan WorldCom Inc. sounded an increasingly familiar refrain Thursday, guiding analysts to lower their sales growth forecasts for the second half of the year.
Investors responded by clobbering the stock, which had recently rebounded from 19-month lows.
WorldCom said its second-quarter profit from operations rose 53% to $1.35 billion, or 46 cents a share after preferred dividends, from $883 million, or 30 cents, a year earlier.
Revenue rose 14% to $10.2 billion.
But the Clinton, Miss.-based company said in a conference call that second-half sales growth will be at the low end of its previous 13.5% to 15.5% estimate.
Though WorldCom also said it’s still comfortable with the lower range of analysts’ earnings estimates for 2000--which the company said range from $1.87 to $1.95 a share--the stock plummeted $5.44 to $39.31 in a dismal day for Nasdaq and tech stocks overall.
A number of major tech companies, including Lucent Technologies Inc., Agilent Technologies Inc. and Xerox Corp., have recently warned of weaker growth in the second half of the year, though their reasons have varied.
WorldCom, which recently abandoned plans to buy rival Sprint Corp., is facing increasing competition in the consumer long-distance market from the former Baby Bells, analysts say.
For example, Verizon Communications, formed June 30 when Bell Atlantic Corp. bought GTE Corp., has signed up more than 878,500 long-distance customers in New York since it started offering the service in January.
“Like the AT&Ts; of the world, they [WorldCom] are getting hurt in that area because of pricing pressure,” said Kenneth Schapiro, head of Condor Capital Management.
So the company is trying to boost sales from Internet, international and data services.
Chief Executive Bernard Ebbers said WorldCom may spin off or issue tracking shares in its phone operations so it can focus on business customers. It also might sell the phone business to another company or investor group, Ebbers said on a conference call. He didn’t specify the timing except to say it won’t be long.
“WorldCom is going back to its roots, namely a commercially oriented” company, wrote Salomon Smith Barney analyst Jack Grubman in a note to clients. He rates WorldCom “buy.”
Almost half of WorldCom’s second-quarter sales came from Internet, international and data services. Internet revenue, though, was slightly less than expected in the quarter, said ING Barings analyst Greg Miller. It grew 40%, compared with 46% in the first quarter.
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Bloomberg News and Associated Press were used in compiling this report.
