Verizon Third-Quarter Net Income Rises
Friday October 25, 11:33 am ET
By Jessica Hall
PHILADELPHIA (Reuters) - Verizon Communications Inc. (NYSE:VZ - News), the No. 1 U.S. local telephone company, on Friday posted higher third-quarter net income, but revenue rose only slightly as weak demand and a loss of telephone lines offset better-than-expected wireless sales.
New York-based Verizon and other Baby Bells have seen their traditional local telephone businesses deteriorate due to increased competition and reduced spending by customers in the weak economy.
Carriers also lost traditional telephone lines as more customers shifted to wireless telephones and electronic mail. Verizon's lines in service dropped 3.6 percent in the quarter. To offset sluggish demand for local telephone services, Verizon has expanded into long distance, wireless and data services.
Verizon is doing a better job of defending its local telephone franchise than the other Bells, said Davenport & Co. analyst Drake Johnstone.
"Verizon is marketing long-distance (service) to more than 80 percent of their customer base. Its easier for them to keep customers when they are marketing bundles of service," Johnstone said.
Verizon's third-quarter net profit more than doubled to $4.4 billion, or $1.60 a share, compared with $1.9 billion, or 69 cents a share, a year ago. The improved results reflected gains on sales of assets and investments, and tax benefits.
Excluding such one-time items, Verizon's earnings totaled $2.1 billion, or 77 cents a share. That matched Wall Street's reduced expectations, according to research firm Thomson First Call.
Operating revenue rose 1.2 percent to $17.2 billion from $17.0 billion in the third quarter of 2001. Sales in Verizon's core domestic telephone business dropped 1.8 percent to $10.2 billion, compared with a drop of 4.4 percent in the second quarter.
"They were solid on revenues on both the telco side and the wireless side," said Jeffries & Co. analyst Richard Klugman, "They're showing better fundamentals on the telco side. Verizon definitely seems to be differentiating itself from its peers."
Earlier this week, sister Baby Bells SBC Communications Inc. (NYSE:SBC - News) and BellSouth Corp. (NYSE:BLS - News) posted sharper declines in third-quarter revenue amid weak wireless telephone, stiff competition and slack demand from customers amid the turbulent U.S. economy. SBC's revenue dropped 5.2 percent, while BellSouth's revenue fell 5.7 percent.
Verizon reiterated that it expects its 2002 revenue to be flat or down 1 percent from the year earlier, and earnings to be in the range of $3.05 to $3.09 share.
Shares of Verizon fell $1.42, or 3.9 percent, to $35.44 in morning trading on the New York Stock Exchange. The stock has dropped about 22 percent this year, trading roughly in line with the North American Telecommunications Index (AMEX:^XTC - News).
Two brokerage firms on Wednesday downgraded the Baby Bells, citing a recent run up in their stock prices and the risk of stiff competition and weak sales in the future.
LONG-DISTANCE, DSL AND WIRELESS JUMP
During the third quarter, Verizon added 804,000 new long-distance customers for a total of 9.8 million customers. It added 155,000 new digital subscriber lines (DSL) that offer high-speed Internet access, bringing its total to 1.64 million.
Verizon Wireless, the company's wireless joint venture with Britain's Vodafone Group Plc (London:VOD.L - News), added 803,000 net new customers in the quarter, bringing its total customer base to 31.5 million. The subscriber growth topped analysts' forecasts, which ranged from 550,000 to 681,000 new customers.
"We believe its (the strong customer gains) sustainable. We have a quality network. We have direct stores, which we see as a big advantage. We have competitive pricing. Service is good. So, from what we're seeing we think its sustainable," Verizon Chief Financial Officer Doreen Toben said in a telephone interview.
"Wireless was solid, especially after the ugly results coming out of Cingular and Sprint PCS. They're very encouraging wireless results," Klugman said.
Cingular Wireless and Sprint PCS, the No. 2 and No. 4 U.S. wireless carriers, respectively, lost customers in the third quarter.
Guzman & Co. analyst Patrick Comack said "only time will tell if these new (Verizon Wireless) customers are quality customers or are they picking up sub-prime customers?"
Sprint PCS lost subscribers in the third quarter as customers with weak credit histories failed to pay their bills or made fraudulent payments. Verizon, however, said it has tightened its credit-screening process and required deposits of up to $400 for customers with bad credit.
The wireless industry has struggled with price wars, stiff competition, and difficulty attracting new customers since about half of the United States already has a cell phone. Verizon will likely set new pricing promotions in the fourth quarter in select markets to boost sales in the holiday season. |
