Level 3 issues earnings warning

The maker of fiber-optic networks told analysts at a conference that it expects its net loss to increase from $4.01 a share in 2000 to $7.50 a share in 2001. Level 3 attributed the shortfall to increases in stock-based compensation and expenses from interest and depreciation.

Wall Street expected the company to lose $6.49 a share, the consensus estimate of 19 analysts surveyed by First Call.

The company also said gross margins would increase from 27 percent in 2000 to 50 percent in 2001 and 55 percent in 2002. Level 3 also expects to have positive earnings in 2001, excluding interest, taxes, depreciation and amortization.

Some analysts believe that traders were most disturbed by the company's revenue guidance for the first quarter. Level 3 expects to generate $360 million to $370 million in revenue for the quarter, but about $135 million to $145 million will come from nonrecurring dark fiber and infrastructure sales--sources that will not last.

"Typically, the investment community wants to see more revenue in the recurring category," said Andrew Hamerling, an analyst at Banc of America Securities, who rates the stock a "strong buy."

Last Friday, the Broomfield, Colo.-based company reported a fourth-quarter loss of $552 million, or $1.50 a share, from $191 million, or 56 cents, a year ago. Analysts expected the company to lose $1.53, the consensus estimate of analysts surveyed by First Call. Revenue increased to $433 million from $173 million a year earlier.