VZ ( $56-$54) PE 13 Posts Net Loss, Cuts Outlook
By Jessica Hall
PHILADELPHIA (Reuters) - Top U.S. local phone company Verizon Communications (NYSE:VZ - news) on Tuesday posted a $1 billion second-quarter loss after writing off soured investments in other telecommunications companies, and warned of weaker results ahead as the economy softens and basic-services demand slows.
Verizon's second-quarter net loss totaled $1.0 billion, or 38 cents a share, compared with a profit of $4.9 billion, or $1.79 a share, a year ago.
Excluding $3.1 billion in charges to write down investments in firms such as Metromedia Fiber Network Inc. (NasdaqNM:MFNX - news), Verizon posted second-quarter earnings of $2.1 billion, or 77 cents a share, compared with $2.0 billion, or 72 cents, a year ago. The year-ago quarter included a $1.9 billion gain from restructuring its investment in Cable & Wireless Communications.
The results were in line with Wall Street earnings expectations, which ranged from 75 to 78 cents a share, with a mean forecast of 77 cents, according to research firm Thomson Financial/First Call.
Revenues rose less than 1 percent, to $16.9 billion. Excluding some overlapping wireless properties, revenues rose 5 percent -- less than many Wall Street analysts had forecast -- amid softer-than-expected growth in sales of data, and Digital Subscriber Line high-speed Internet access services. Expenses increased 3.4 percent.
Shares of Verizon fell $1.87, or 3.34 percent, to close at $54.15 on the New York Stock Exchange (news - web sites). The stock has gained about 11.5 percent this year, outperforming the Standard and Poor's 500 Index (^SPX - news) by about 19 percent.
Verizon has cut the equivalent of about 16,000 jobs over the past 12 months through attrition, trimming overtime, and using outside contractors in slow-growing businesses like its local telephone operations. The company may cut additional jobs and expenses if the economy worsens, but it does not expect any ''massive'' layoffs, Verizon Chief Financial Officer Fred Salerno said in a telephone interview.
GROWTH OUTLOOK CUT
For the full year, New York-based Verizon cut its earnings outlook to a range of $3.07 to $3.12 a share, from a previous range of $3.13 to $3.17. It cut its revenue growth outlook to a range of 5 percent to 6 percent, down from its earlier forecast of 7 percent.
Verizon, like other traditional telephone companies, has been concentrating on wireless, data, and Internet services as new sources of growth. Verizon, however, still gets most of its profits from basic telephone services -- an area hurt by the weak economy.
In the second quarter, Verizon's core Domestic Telecom unit posted revenues of $10.953 billion, essentially flat with the year-ago $10.916 billion.
Total telephone-access lines fell 0.4 percent, to 62.465 million lines, due mostly to a drop in corporate demand as companies lay off workers or close facilities. Verizon expects telephone-access lines to be flat, to slightly down, in the second half of the year.
DSL FALTERS, LONG-DISTANCE SURGES
Second-quarter data-transport revenues increased 25 percent, slightly less than some analysts had expected. Salerno said data-transport revenues are expected to continue to grow in the mid 20-percent range in the second half of the year.
Total data services sales increased to $1.7 billion, up from $1.5 billion in the second quarter of 2000.
Verizon added 120,000 Digital Subscriber Line (DSL) customers for high-speed Internet access, a decrease from the 180,000 added in the first quarter and below many analysts' expectations.
Verizon, which ended the second quarter with about 840,000 customers, said it still expects to have about 1.2 million to 1.3 million DSL subscribers by year-end. Verizon has worked to increase its productivity in installing and maintaining DSL services, but the business continues to lose money due to the high cost of rolling out the service.
Salerno said he does not expect DSL to be profitable for ''at least a couple of years,'' but said ``it looks like (this year) we're getting to the peak point of dilution associated with DSL.''
Verizon Long Distance, the nation's No. 4 long-distance provider, added about 804,000 new customers in the quarter and ended the quarter with 6.0 million customers nationwide. It increased its year-end subscriber target to 6.7 million to 6.9 million customers, up from a previous target of 6.4 million to 6.6 million subscribers.
As previously announced, Verizon Wireless added 808,000 net new customers during the second quarter 2001, increasing its total customer base to 27.9 million, up 12.7 percent from the year-ago quarter. Verizon Wireless, the No. 1 U.S. wireless telephone services company, is a joint venture of Verizon and Britain's Vodafone Group Plc (VOD.L).
Despite media speculation that Verizon and Vodafone may alter the structure of their partnership, Salerno said ``we love the relationship that we have right now ... we'd love to keep it just the way it is.''
Separately, Verizon Wireless said it may alter the structure and terms of its agreement to buy Price Communications Corp.'s operations in the southeastern United States.
Verizon Wireless had agreed to buy the Price (NYSE:PR - news) assets for $2.06 billion in common stock and assumed debt. However, since Verizon Wireless has delayed its IPO until market conditions improve, it started talks with Price to explore alternative terms, including new forms of payment.
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