Updated from 10:40 a.m. EDT

WorldCom

(WCOM)

, the country's second-largest long-distance telephone company, announced a 26% increase in third-quarter profits Thursday, meeting Wall Street expectations, and said it would unveil a plan next week to restructure the company.

Clinton, Miss.-based WorldCom earned $1.37 billion, or 47 cents a share, in the third quarter, excluding one-time charges. That's up from net income of $1.08 billion, or 37 cents a share, in the same period a year earlier. WorldCom's third-quarter results matched the consensus estimate among Wall Street analysts surveyed by

First Call/Thomson Financial

.

WorldCom's net income excludes after-tax charges of $405 million associated with domestic and international wholesale accounts the company deemed no longer collectible. In a conference call Thursday, Scott Sullivan, chief financial officer, said the charge was related to wholesale receivables, one-third of which came from outside the country.

"We are certainly not immune to what happened on the capital contraction side (in the wholesale business)," said Sullivan, adding that there were 17 bankruptcies in the quarter among the wholesalers with which WorldCom works.

WorldCom executives said the company built up its inventory earlier in the year to ensure it would have enough supplies to install and expand services for its customers, but inventory and spending levels have since decreased to normal levels.

WorldCom's overall revenue rose to $10.05 billion in the third quarter, up 12% from about $9 billion a year earlier, due partly to continued growth in demand for global broadband services. Strong growth in its data, international and Internet services business helped offset wholesale and consumer revenues, which decreased 3% from the same year-ago period.

WorldCom's total wholesale and consumer revenues fell to $2.88 billion in the third quarter, down from $2.97 billion in the same year-ago quarter. Sullivan said continued weakness in wholesale revenues due to pricing declines accounted for most of the losses. Wholesale revenues have decreased in each quarter of 2000.

Consumer revenue growth was flat, but Sullivan said he viewed the results as strong "considering the declining market." Part of the consumer weakness stemmed from declines in its 1-800-COLLECT and 101-0321 long distance services, which he said WorldCom no longer actively markets.

Meanwhile, the company's dedicated Internet and related services revenues increased 51% to $640 million in the quarter. WorldCom's overall international revenues rose 42%, driven primarily by strong sales growth in Europe and an increase in Asia-Pacific and Latin American regional sales. Domestic data revenue grew by 23% to $363 million, fueled by increased private line and frame-relay services sales as WorldCom customers expanded and upgraded their networks.

Sullivan said the areas of voice wholesale and dial-up Internet access remain "difficult" and added that he doesn't expect the environment to improve over the next few quarters. But he said WorldCom is well-positioned in providing a wide range of Internet-related services, which should offset weakness in other sectors.

"All in all it was a solid quarter, especially in light of the ongoing commercial environment, with price pressures along almost all the areas of our business," said Sullivan.

Ramkrishna Kasargod, an analyst with

Morgan Keegan & Company

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said WorldCom's results in the quarter show that there does continue to be revenue pressure in the industry. "But they are adjusting for the changes taking place by restructuring," he added.

Kasargod, whose firm has not done underwriting got WorldCom, rates the stock an "outperform" in the telecommunications group, though he acknowledges that the stocks have been performing "pretty badly" sector-wide.

Bernard J. Ebbers, WorldCom president and chief executive officer, said WorldCom led the industry in its digital and international revenue growth in the third quarter, and has intensified its efforts to become a more business-focused communications company.

The company announced plans last month to

acquire

Intermedia Communications

(ICIX)

, a telecommunications operator which is the majority owner of the Web-hosting company

Digex

(DIGX)

.

Ebbers said Thursday that WorldCom expects to close the deal, valued at about $3 billion, by the end of the first quarter of 2001. In the meantime, he said WorldCom will begin rolling out Digex products to its sales force over the next 30 days.

The acquisition helps WorldCom in its goals to provide expanded services to its business customers, focusing in particular on the growth-oriented data business and on digital services. The company will unveil details of its plans to restructure the company on November 1.

Though WorldCom's earnings meet expectations and the company reported significant growth in its international and Internet services business, investors seemed to focus instead on weak wholesale and consumer revenues. The market sent shares of WorldCom down $3.50, or nearly 14%, to end the regular session at $21.75.

"I'm amazed the stock is so cheap. There are several companies without nearly the same growth that are trading higher," said Stephen Shook, an analyst at

Wachovia Securities

.

Shook said Worldcom's total revenues were about what he'd expected, though some components were weaker than he'd anticipated. "If you get in a market where people want to focus on those areas in which they did worse than expected, that (a low stock price) is what happens."

Shook has a buy rating on Worldcom's stock, and his firm does not have any underwriting relationships with the company. He said he is reviewing his initial target price, but added, "If you had normal market multiples, you'd be talking about a $50 stock."