MCI WorldCom Has 3rd-Qtr Profit, Helped by Intl Sales (Update3)
Bloomberg News
October 29, 1998, 3:56 p.m. ET
MCI WorldCom Has 3rd-Qtr Profit, Helped by Intl Sales (Update3)
(Adds outlook for Brazil in 15th paragraph.)
Jackson, Mississippi, Oct. 29 (Bloomberg) -- MCI WorldCom
Inc. reported a third-quarter profit, helped by an investment in
Brazil's dominant phone company, even as its $47 billion purchase
of MCI Communications Inc. slowed revenue growth.
Profit before charges was $430 million, or 19 cents a share,
compared with a loss of $265 million, or 17 cents, a year ago.
The company stated both quarters' results on a pro-forma basis,
as if MCI and WorldCom Inc. were combined in both periods.
MCI's stake in Embratel Participacoes SA of Brazil added
$930 million to MCI WorldCom's revenue. Embratel, coupled with
sales of MCI WorldCom's data and Internet services, helped
revenue rise
30 percent, down from WorldCom's average gain of 57 percent over
the past five years.
''This company cannot achieve the kind of percentage growth
numbers the WorldCom of a couple of years ago was able to
achieve,'' said Michael Mahoney, senior portfolio manager at the
$2 billion AIM Global Telecommunications Fund, which has 1
million shares.
He said he still expects MCI WorldCom to grow at a faster
clip than rivals, including AT&T, the world's No. 1 U.S. long-
distance phone company. MCI WorldCom is the No. 2 U.S. long-
distance company.
The shares rose 5/16 to 54 3/8 in late trading.
Charges totaling $3.22 billion for the MCI acquisition
resulted in a loss of $2.9 billion, or about $2.44 a share in the
latest quarter. The quarter was the first period MCI and WorldCom
reported earnings as a combined company.
Earnings Expectation
WorldCom paid $47 billion for MCI Sept. 14, near the end of
its quarter. Including 16 days of MCI and Embratel earnings,
WorldCom MCI said its profit before charges rose to $282 million,
or 21 cents a share, from $76 million, or 7 cents, a year ago.
Those per-share earnings are in line with expectations of 21
cents a share, according to the average estimate of analysts
surveyed by First Call Corp.
Analysts said the earnings were confusing because MCI
WorldCom presented several different sets of results to reflect
the MCI acquisition and the Brazil investment.
''It's very difficult to understand with any precision how
the numbers stack up,'' said Anthony Ferrugia, an analyst at A.G.
Edwards, who has a ''maintain'' rating on MCI WorldCom. ''I will
be looking forward to future quarters when everything gets firmed
up.''
The earnings are before payment of preferred dividends and
distributions on trust securities.
Revenue Rises
Revenue rose 30 percent to $8.61 billion from $6.62 billion,
led by a more than sixfold increase in international phone sales
to $1.23 billion. The gain in international phone sales includes
the Embratel purchase.
MCI bought a 52 percent voting stake in Brazil's Embratel
for 2.65 billion reais (US$2.16 billion) during the selloff of
Telecomunicacoes Brasileiras SA, the government-controlled phone
company that was sold at the end of July.
MCI WorldCom may not be able to count on its operations in
Brazil for much of its future growth. The government is set to
sell more licenses to provide phone services in January,
increasing competition in that market. Simultaneously, Brazil is
headed into a recession that could cut growth in the $800 billion
economy
1 percent to 3 percent next year.
Internet, Data Sales
Data services revenue rose 33 percent to $1.52 billion,
while Internet services rose 72 percent to $589 million.
It's been a year since WorldCom agreed to buy MCI in the
largest telecommunications purchase ever, and the company is
benefiting from its lead in local, international and Internet
markets.
MCI and WorldCom were each among the first phone companies
to focus on the Internet and invest in networks to carry data.
The company is the world's leading carrier of Internet traffic.
''They are rolling out their strategy without wasting any
time,'' said Oscar Castro, senior portfolio manager at Montgomery
Asset Management LP, which owns about 222,000 MCI WorldCom
shares.
Revenue from voice services rose 10 percent to $4.9 billion,
accounting for 64 percent of overall sales.
Last month, MCI WorldCom said it will offer discounts of as
much as 35 percent for calls between companies that use its
local, long-distance and international services. It's an offer
that, so far, no rival has been able to match.
The company is also expanding quickly overseas and plans to
triple the size of its network in Europe, spending as much as
$1.2 billion to boost the total cities connected to 45 from 10.
Sales of consulting services, mainly from MCI Systemhouse,
fell 25 percent to $356 million because the company eliminated
some operations. MCI WorldCom also cited the impact of a strong
U.S. dollar against the Canadian dollar.
--Colleen McElroy (609) 279-4069 and Andrew Brooks (609) 279-4066
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