By Staff
Wall Street analysts hate surprises. Shareholders expect a fair return on their investment. WorldCom has a lot to prove in the coming months.
Once the shining star of Mississippi's entry onto the world telecommunications stage, has WorldCom lost its luster? Its stock has lost 75 percent of its value this year and on Thursday the company disclosed a 65 percent decline in profit for the first quarter. More questions than answers were raised.
The Clinton-based company said first-quarter profit plunged as corporate clients reduced spending and pricing pressures continued to hurt. WorldCom Group posted first-quarter net income of $184 million, or 6 cents a share, compared with $532 million, or 18 cents a share, in the year-ago quarter. This was a huge hit, partly due to some one-time write-offs, as analysts had expected WorldCom Group to earn 13 cents a share.
President and chief executive Bernie Ebbers tried to put the best face on the unsettling first quarter results.
WorldCom is maintaining its customer base and overall market share, but is affected by slowdowns in technology and financial services sectors where WorldCom holds a commanding market position,'' he said. As the market and our customers' telecommunications spending recovers, WorldCom is well positioned to improve its financial performance.''
Well positioned, indeed. If the value of its stock goes much lower it will be in the junk category. Still, any company with $20 billion-plus in annual revenues should be able to recover by implementing cost-cutting measures.
WorldCom is the subject of an ongoing Securities and Exchange Commission investigation of accounting and loan practices. It is under competitive global pressures. Its consumer services and long distance unit, MCI Group, reported a net loss of $54 million, or 45 cents a share, in the first quarter, compared with a profit of $62 million, or 54 cents, a year ago.
WorldCom has grown from nothing to a global leader in the once-lucrative telecommunications business by gobbling up related companies. Increasing debt payments on all of the acquisitions mean the next few years will be critical to the company's future. The amounts owed are huge: $60 million for the rest of 2002, $1.6 billion in 2003, $2.5 billion in 2004 and $2.3 billion in 2005.
Its restated and revised financial predictions for 2002 show revenue ranging from $21 billion to $21.5 billion and earnings of between $7 billion and $7.5 billion. Some analysts believe that prediction is overly optimistic and question how better results can be achieved without drastic cost-cutting measures.
Wall Street analysts hate surprises. Shareholders expect a fair return on their investment. WorldCom has a lot to prove in the coming months.