WorldCom Profit Falls 44% as Growth Slows
WorldCom Inc., the No. 2 U.S. long-distance telephone company, said Thursday that its fourth-quarter profit fell 44% on lower-than-expected revenue as weakness in the long-distance telephone business offset higher data, Internet and international sales.
Profit fell to $710 million, or 25 cents a share, from $1.3 billion, or 44 cents a share, a year ago, as revenue rose 3.3% to $9.6 billion.
The profit decline is the biggest and sales growth the slowest since WorldCom bought MCI Communications Corp. in September 1998. The results met analysts’ forecasts that had been lowered from 49 cents in November after WorldCom warned of profit weakness.
The company, which said in November it would create a tracking stock for its consumer and wholesale long-distance businesses, suffered from falling prices and stiff competition that have hobbled the long-distance industry.
Revenue growth fell short of WorldCom’s forecast of 7% to 9%; analysts had previously expected revenue to rise 9% to 12%. The revenue shortfall was due to lower-than-expected sales in WorldCom’s consumer and wholesale long-distance operations, analysts said.
Long-distance sales to consumers and other phone companies fell 12% to $2.62 billion, much faster than the 3% decline in its third quarter. Data revenue rose 23% to $1.93 billion. U.S. data sales rose at the same rate in its third quarter.
Data and Internet services accounted for 45% of WorldCom group’s revenue in its fourth quarter, up from 40% a year earlier.
Full-year 2001 revenue growth for the WorldCom group will be between 12% and 15%, with quarterly growth increasing through the year, the company said.
WorldCom is expected to cut as many as 11,550 jobs in order to reduce costs. Fourth-quarter operating expenses rose 17% to $8.1 billion.
Under its restructuring plan, WorldCom will remain the company’s name, but it will have two separately traded tracking stocks. A tracking stock reflects the performance of a specific portion of a company’s operations.
The WorldCom group will include the company’s core data, Internet, Web hosting, corporate telephone and international businesses.
WorldCom in November had set fairly low growth targets for 2001, but investors still took comfort in the fact that the company did not slash its forecasts further Thursday, analysts said.
“The fact that they really didn’t lower expectations is good. Under-promising and over delivering isn’t necessarily a bad strategy,” said Tim Ghriskey, a portfolio manager of the $4-billion Dreyfus Fund.
Echoing comments made by such rivals as AT&T; Corp. and Qwest Communications International Inc., WorldCom said that prices in the business communications market appear to be stabilizing after intense price wars last year. To stem the trend of sales teams discounting prices to win accounts, WorldCom said it set strict price floors that cannot be breached without senior management approval.
Shares of WorldCom rose 19 cents to close at $20.31 on Nasdaq.
The stock has fallen about 52% over the last year amid a broad sell-off in telecommunications stocks and concerns about growth in the long-distance market.
At a Glance
Other earnings, excluding one-time gains or charges unless noted, include:
* American International Group Inc., the world’s biggest insurer, said fourth-quarter earnings rose 16% to $1.53 billion, or 65 cents a share, on a 14% rise in revenue to $12.5 billion. AIG said earnings growth from financial services, which includes aircraft leasing and trading of derivatives and swaps, and life insurance offset a slump in auto and property insurance for individuals.
* AutoNation Inc., the largest U.S. auto retailer, said fourth-quarter earnings rose 51% to $61.2 million, or 17 cents a share, a penny less than analysts expected, as it reduced operating costs and boosted margins at its dealerships. Sales fell 6.3% to $4.7 billion, in part because of the closing of AutoNation’s used-car megastores.
* Barr Laboratories Inc. said fiscal second-quarter profit rose 11% to $13.8 million, or 37 cents a share, a penny better than estimates, on demand for its cancer and organ transplant drugs and revenue from drug development agreements with DuPont Co. The generic drug maker’s revenue rose 12% to $135.2 million. Barr also said that the Securities and Exchange Commission has questioned the method the company used to account for revenue and expenses from two business arrangements.
* Adolph Coors Co. said its fourth-quarter income increased 24% to $15.2 million, or 40 cents a share, a penny better than expectations. But the brewer raised concerns about the effects of a flat market for its beer in California, as well as rising costs of energy and materials, on its future results.
* Gannett Co. said fourth-quarter earnings rose 3.8% to $294.9 million, or $1.11 a share, matching forecasts, on higher advertising sales at its newspapers and purchases of publications in the U.S. and Britain. Sales at the owner of USA Today rose 30% to $1.89 billion, boosted by the acquisitions. Gannett said a slowing U.S. economy hurt ad sales, and said advertising demand continues to slow in the first quarter.
* John Hancock Financial Services, completing its first year as a public company, said fourth-quarter profit rose 30% to $181 million, or 58 cents a share, driven by sales of life insurance, annuities, mutual funds and pension business. Revenue was flat at $2.03 billion.
* Network Appliance Inc. said fiscal third-quarter profit surged 95% to $38.9 million, or 11 cents a share, a penny better than forecasts, as more large businesses bought its computers that store and deliver files over networks. Sales jumped 91% to $288.4 million.
* Pixar Animation Studios, the producer of the computer-animated films “Toy Story” and “A Bug’s Life,” said fourth-quarter profit soared to $35.2 million, or 71 cents a share, from $9.6 million, or 19 cents, a year ago, far exceeding Wall Street’s average forecast of 63 cents. The Emeryville, Calif.-based company’s revenue more than tripled to $75.7 million from $24.9 million, helped by sales of “Toy Story 2” box-office tickets, home videos and merchandise.
Pixar also raised its expectations for the first quarter and full year 2001, based on expectations for strong merchandise and home video sales as well as licensing fees from an expected pay-per-view airing of “A Bug’s Life.”
* Polo Ralph Lauren Corp. said profit climbed 57% in its fiscal third quarter to $50.6 million, or 52 cents a share, as it cut costs, sold more luxury apparel and gift items and boosted sales in Europe. The apparel company said revenue rose 20% to $613.7 million.
* Razorfish Inc., which provides Internet design and consulting services, reported a fourth-quarter loss of $19.8 million, or 20 cents a share, contrasted with a profit of $5.8 million, or 6 cents, a year ago, as revenue declined 5% to $50.1 million.
* Simon Property Group Inc., the world’s largest shopping mall owner, said fourth-quarter funds from operations rose 14% to $192 million, or $1.03 a share, matching forecasts, as rising occupancy rates offset a slowdown in tenant sales. The company, a real estate investment trust, said revenue rose 7.6% to $561.3 million.
* Starwood Hotels & Resorts Worldwide Inc., the world’s largest hotel owner, said fourth-quarter earnings increased 26% to $131 million, or 64 cents a share, exceeding forecasts of 60 cents, on higher room rates and occupancies and a lower tax rate. Revenue rose 2.4% to $1.1 billion
* TheStreet.com Inc. said its fourth-quarter operating loss narrowed to $5.6 million, or 20 cents a share, from $9.1 million, or 36 cents a share, a year ago. The online news provider’s results were far better than the 28-cent loss analysts expected, after the company reported disappointing results for its third quarter. TheStreet.com’s revenue also exceeded forecasts, rising 23% to $6.3 million. Analysts expected $5.4 million, according to First Call/Thomson Financial. Ad revenue climbed 33% to $3.9 million, while subscription revenue grew 33% to $2.1 million.
