WorldCom Blames 1Q Shortfall On Customer Downsizing

WorldCom

For the quarter, WorldCom earned $184 million, or 6 cents a share, on sales of $5.1 billion, compared with income of $532 million, or 18 cents a share, on sales of $5.2 billion for the year-ago quarter.

First Call estimates were for earnings of 11 cents per share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $1.8 billion vs. $1.9 billion for the year-ago period.

"This quarter was obviously more challenging than we expected," said Bernard Ebbers, CEO of WorldCom. "Poor economic conditions continue to inhibit customer usage, resulting in lower customer spending, rather than loss of customers and market share."

Ebbers said WorldCom's large customers have reduced employee head count, closed locations and delayed deploying new applications, resulting in reduced usage of its telecom services. Financial services and high-tech sectors were hit especially hard, he said.

Customer network downsizing and other actions cost the carrier $186 million for the quarter, the company said. In an effort to prove his point, Ebbers broke out the reduction in monthly spending by some of its major accounts.

Compaq Computer is spending $500,00 less each month for WorldCom services, Bear Sterns reduced its monthly telecom spending with the carrier by $286,000 and Household Finance and Georgia Pacific cut monthly spending by $200,000 each.

ISP, CLEC and DLEC bankruptcies and reduced spending also impacted WorldCom's results, said Ebbers. The impact of bankrupt customers was a loss of $18 million and attrition and lost customers another $103 million. Ebbers said the company lost only two major accounts during the quarter,Dow Chemical to an outsourcing deal with EDS and PricewaterhouseCoopers to Sprint.

Ebbers also pointed to some bright spots for the carrier, including major customer wins for IP VPNs, a growing pipeline for co-location services, increased DSL demand and continued growth in its international business.

New installations during the quarter generated $302 million for the carrier. Still, this was not enough to cover the attrition of $103 million, rate write-downs of $140 million and the network downsizing of $186 million, Ebbers said.

Ebbers also said WorldCom is cooperating fully with an ongoing Securities and Exchange Commission investigation. The carrier turned over seven boxes of information on April 15 and plans to turn over another 12 boxes this Friday, he said.

As for WorldCom's ability to meet debt deadlines, Ebbers said it is not an issue, adding that he found it "very frustrating" that it was a subject of so much speculation.

WorldCom reiterated lowered guidance for the year. Late last week, WorldCom said it expects revenue of $21 billion to $21.5 billion in 2002 vs. its prior outlook of $22.2 billion to $22.6 billion for the year.

The company also reduced its EBITDA forecast to $7 billion to $7.5 billion, compared with an earlier forecast of $8.4 billion to $8.5 billion.