Verizon beats Street; shares sag
By Reuters
July 29, 2003, 5:00 PM PT
Verizon Communications, the largest U.S. telephone company, on Tuesday posted a better-than-expected quarterly profit, helped by solid gains from its wireless business.
But shares of the New York-based company fell more than 1 percent as the company warned that 2004 earnings would be diluted by 20 cents in pension charges to cover losses on equity investments. Companies around the world have been forced to top up their pension funds after losing money on equity investments as stock markets plummeted in recent years.
"This is a negative for the other Bells as well. These guys go together," said Patrick Comack, an analyst with Guzman, adding he expected earnings estimates for 2004 to come down for all of the local telephone companies. Analysts said Verizon's shares were weighed down by the possibility of a prolonged labor strike starting next week if the company cannot reach a contract agreement with unions representing about 35 percent of its work force.
[Harry: TLAB was questioned about the effect of a VZ
strike. TLAB management down played the effects on earnings
next q. I am not sure I am as optimistic.]
"We're scared off right now by all the labor talk, which will weigh on the stock,'' said Tim Ghriskey, president of Ghriskey Capital Partners, which sold its Verizon shares earlier this year.
Verizon also said on Tuesday that it could cut as many as 4,000 to 5,000 jobs in 2003 to reduce costs. The company said it needed to cut costs equivalent to that number of employees but the number of job losses could end up being less.
Verizon shares closed down 58 cents to $35.40 on the New York Stock Exchange, where it was one of the most heavily traded stocks.
For the second quarter Verizon said its net profit totaled $338 million, or 12 cents a share, including one-time charges of $1.6 billion related to the sale of its stake in a Mexican wireless carrier, as well as the cost of severance, pension and other benefits. It posted a loss of $2.1 billion, or 78 cents a share, a year ago. Excluding the charge, Verizon earned 69 cents a share, beating analysts' average expectation by a penny, according to tracking firm Reuters Research.
"(Overall results) appear to be a little stronger than some of their competitors due to the strength in Verizon Wireless," said Craig Nedbalski, managing director of Cleveland-based asset management company Victory Capital Management. Verizon reported revenue for the quarter of $16.83 billion compared with $16.75 billion a year ago as Verizon Wireless' 14.3 percent increase in revenue offset a 3.4 percent decline in its domestic telecom business, which includes its local and long-distance service.
[Harry: This is an interesting result as it goes
against the overall weakness analysts are suggesting for
worldwide sales in handsets. Is VZ get new customers
or stealing customers from other services.]
Verizon Wireless, its joint venture with Britain's Vodafone Group, posted $5.5 billion in revenue and added a record 1.3 million customers, including both wholesale and retail customers--more than any other wireless operator. It also posted an increase in service revenue per customer as well as a drastic improvement in customer turnover rates.
"They're beating their competitors in every possible way," said Michael Hodel, telecoms analyst with Morningstar. "Verizon Wireless has allowed Verizon as a whole to report a small gain in revenue versus a year ago, which is something no other major telecoms company is reporting right now." |
