Update: WorldCom Meets Estimates

Updated from 3:44 p.m. EDT

WorldCom (WCOM) reported earnings that matched Wall Street's expectations Thursday, excluding charges that the company will take after a failed attempt to merge with long-distance telephone rival Sprint (FON).

WorldCom said it may spin off some of its voice carriage services into separate companies in an effort to concentrate its efforts to market to commercial customers. Company officials noted that yearly revenue growth of 20% in commercial sales far outstripped the 1% growth the company produced in consumer sales.

WorldCom shares finished down 5 7/16, or 12% at 39 15/16 amid a broader selloff in telecommunications shares.

"It's a very rough day for telecom and tech stocks," said Bruce Roberts, senior telecommunications services analyst at Dresdner Kleinwort Benson, referring to a broad decline in a variety telecom shares prompted in part by an earlier selloff in shares of mobile phone giant Nokia, which met earnings expectations, but forecast shrinking third-quarter earnings. (Dresdner has not underwritten Worldcom stock or debt and rates the stock an add)

He added that the specter of the failed merger between Worldcom, lower revenue estimates through the end of the year and potential spinoffs for several of Woldcom's businesses is causing investors to "overreact" by selling Worldcom shares.

Worldcom said in its earnings report that lower-than-expected revenue from a contract with America Online, and fierce competition in the voice long-distance business put a damper on second-quarter income. Additionally, the company said it expects revenue to grow about 13.5% in the second half of the year, the low end of its previously-estimated range of 13.5% to 15.5% revenue growth.

"The spinoffs are more-or-less a neutral for the company, and the lower top-line guidance from the company isn't as harsh as (Thursday's) selloff in the stock suggests," said Roberts. "The company still looks very attractive in terms of Internet backbone, networks, revenue from overseas, and other areas."

For the second quarter ended June 30, net income was $1.3 billion, or 46 cents a share, matching the consensus estimate of analysts polled by First Call/Thomson Financial. This compared to $865 million, or 31 cents a share, in the second quarter of 1999.

The Clinton, Miss.-based company said net income including one-time items was $1.28 billion, or 44 cents share. Those items include a $55 million tax charge resulting from the company's attempt to merge with Sprint.

The second- and third-largest U.S. long-distance operators officially withdrew their merger plans on July 13 after the U.S. Justice Department filed suit on June 27 to block the deal on antitrust grounds.

WorldCom said its communications services revenue grew 14% to $10.2 billion in the quarter. Data, Internet and international revenues grew 30% to $4.9 billion and now account for 48% of the company's total revenues.

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