MCI reports rise in Q3 earnings on revenue fall

MCI Inc.’s revenue for the third quarter declined but net income rose sharply, boosted by cost-cutting measures and an income tax refund, the company reported Thursday.

The company reported revenue of $4.47 billion for the third quarter, down from $4.68 billion in the previous quarter and $5.08 billion a year earlier. Net income rose to $271 million, up from $64 million in the previous quarter and from a loss of $3.4 billion a year earlier.

Earnings per share totalled $0.82, easily beating the $0.05 consensus forecast of five analysts polled by Thomson First Call. However, for the last several quarters, analyst forecasts have missed accurately predicting actual results.

The company also cut its selling, general and administrative (SG&A) expenses by 17.6 percent to $1.03 billion, from $1.25 billion a year earlier, it said. The U.S. sales and service division, serving consumers, small businesses, and large U.S. businesses, saw the biggest cuts in SG&A expenses, to $538 million from $728 million.

The company also cut its cost of sales by 7.4 percent to $2.97 billion, from $3.21 billion a year earlier. The international and wholesale markets division accounted for most of those savings.

“Access continues to be our most challenging expense item,” Chief Executive Officer Michael Capellas said during a conference call with analysts and reporters. Voice-call revenue continues to decline, as the company is not actively seeking to acquire new customers, he said.

An income tax refund of $164 million boosted net income. Operating income for the quarter totalled just $159 million. The U.S. sales and service division and the enterprise markets division each contributed almost half that figure, with $7 million coming from international and wholesale markets.

The company stands by the guidance it gave in May for future performance, said Chief Financial Officer Bob Blakely. Then, it forecast full-year revenue of between $18 billion and $19 billion. As for the company’s acquisition by Verizon Communications Inc., “We continue to expect the merger will be completed very late in 2005 or very early in 2006,” he said.

On Monday, Verizon received U.S. Federal Communications Commission approval for its acquisition of MCI. The U.S. Department of Justice gave its assent on Oct. 7, and the deal is now awaiting the approval of a handful of states.