WorldCom Earnings Plunge 64%

Beleaguered telecommunications giant WorldCom Inc. said Thursday that fourth-quarter profit plunged 64% and that 2002 results will be lower than expected, partly due to an upcoming charge of as much as $20 billion.

But investors fearing that the Clinton, Miss.-based company might succumb to the financial devastation sweeping the telecom industry gave the company a reprieve after Chief Executive Bernard Ebbers said WorldCom has access to $10billion in cash and that its operations, though struggling, are sound.

“Bankruptcy or a credit default is not a concern,” he said in a conference call with analysts.

WorldCom shares, down 50% this year on fears of a credit default, rebounded Thursday as much as 20% before closing on Nasdaq at $7.52, up 83 cents, or 12%. But falling traffic in its long-distance business caused WorldCom’s MCI tracking stock to skid 16%, or $1.45, to $7.61, also on Nasdaq.

The nation’s second-largest long-distance carrier, behind AT&T; Corp., said profit in the three months ended Dec. 31 fell to $258 million from $726 million in the year-earlier period. Sales fell 12% to $8.4 billion.

Analysts said they were encouraged by the report, but several said WorldCom is not out of the woods.

“Growth companies grow despite economic conditions,” said Scott C. Cleland, a telecommunications analyst at the Washington research firm Precursor Group. “WorldCom’s no longer doing that.”

The two main operating units posted disappointing results.

Profit in its corporate-data division fell 48% to $305 million, or 10 cents a share, as revenue dropped 9.6% to $5.3 billion.

The MCI unit reported a fourth-quarter loss of $89 million, or 75 cents a share, contrasted with a profit of $125 million, or $1.09, a year earlier. Revenue fell 16% to $3.1 billion.

“WorldCom is not immune to the challenges of the telecom marketplace,” Ebbers said. But “WorldCom has a solid base of bill-paying customers, strong fundamentals, a solid balance sheet, manageable leverage and nearly $10 billion in available liquidity.”

Ebbers and other executives said 2002 profit would fall to 75 cents to 85 cents a share, below analysts’ estimates of 95 cents. The revised forecast prompted Moody’s Investors Service to put WorldCom’s long-term credit rating on review for possible downgrade.

WorldCom said it trimmed its debt by $1 billion in the fourth quarter to $24.7 billion. It is owed less than $10 million by Global Crossing Ltd., the Bermuda-based fiber-optic network operator that filed for bankruptcy protection last month.

But WorldCom said it may have to write down as much as $20 billion from its spree of acquisitions in recent years. The company carries $50.5 billion in goodwill--the difference between the purchase price of an asset and its book value--on its balance sheet.

Investors also have been worried about Ebbers’ ability to repay nearly $200 million in personal loans from the company and the possibility he would have to sell millions of shares of WorldCom stock to cover those debts. Ebbers said Thursday that he has the resources to repay the loans and won’t be selling any stock to do so.

Overall, WorldCom investors have lost more than $100 billion in equity since 1999.

Some analysts Thursday warned that the damage could grow in coming months because WorldCom’s core long-distance market is shrinking as cell phones and e-mail siphon away traditional users of long-distance services.

Though WorldCom and rivals AT&T; and Sprint Corp. have tried to stem the damage by raising long-distance rates, experts say the long-term outlook for renewed robust growth is not bright.

“I think WorldCom is doing among the best of a pretty poor lot right now ... but the question is whether they can ride it out,” said Eileen Eastman, a telecommunications analyst at Yankee Group, a consulting firm in Cambridge, Mass.

WorldCom has been hit by sharp reductions in corporate spending on telecommunications, the dot-com bust and the slow roll-out of next-generation technology products such as high-speed Internet access.

WorldCom went on a torrid acquisition binge during the 1990s, gobbling up Internet service provider UUNet Technologies, long-distance giant MCI and dozens of other companies.

For the year, WorldCom’s profit plummeted 94% to $1.4 billion, or 48 cents per share, from $22.8 billion, or 87 cents, in 2000. Revenue fell 6.5% to $21.3 billion.

In other earnings news:

* Ask Jeeves Inc. reported a fourth-quarter loss of $3.5 million, or 9 cents a share. The loss does not include restructuring charges, gains on the dissolution of a joint venture and other one-time items. That’s narrower than its loss in the period a year ago of $18.7 million, or 53 cents a share.

* Electronic Data Systems Corp. posted a 20% increase in fourth-quarter earnings, excluding a one-time credit, as companies and governments outsourced computer operations to cut costs. Texas-based EDS, the world’s No. 2 computer-services provider after IBM Corp., said fourth-quarter earnings were $396 million, or 81 cents per diluted share, compared with $331 million, or 70 cents, a year earlier.

* Royal Philips Electronics, Europe’s largest maker of consumer electronics, had a record loss in the fourth quarter on slumping sales of semiconductors, computer screens and televisions. The loss was $1 billion, or 90 cents a share, contrasted with profit of $2.79 billion a year earlier.