Verizon Profit Climbs on Wireless Sales

07.27.2004

A 25 percent surge in wireless services sales helped boost Verizon Communications Inc.'s second-quarter profit five times higher than a year ago, the company said Tuesday. The results beat Wall Street expectations.

The nation's largest telecom company, based in New York, earned $1.8 billion, or 64 cents a share, up from $338 million, or 12 cents a share, in the year-ago quarter. Revenues for the quarter were $17.84 billion, compared with $16.83 billion a year before.

Analysts polled by Thomson First Call had been expecting earnings of 60 cents a share.

Shares in Verizon gained up $1.50, or 4.1 percent, to $38 in midday trading on the New York Stock Exchange.

Cost cutting helped the company wring more profits from revenues that were up 6 percent. Verizon cut 14,000 jobs in the past year. More than 21,000 workers accepted a voluntary retirement package in the fourth quarter that cost nearly $3 billion; but the company added jobs, mostly in the wireless segment, offsetting those losses.

Verizon has said it hopes to cut $1 billion a year from its expenses in coming years.

"There's lots of opportunity for additional cost reductions," said Doreen Toben, Verizon's chief financial officer. "There's a lot more mechanization we can do. A lot of the systems, especially in teleco, are old."

The company's revenue mix shifted, with more than half its revenues coming from wireless, long-distance and broadband.

Sales in the wireless division were 25 percent higher than they were for the year-ago quarter. Verizon said its wireless division, which it jointly owns with the United Kingdom's Vodafone Group PLC, has 40.4 million wireless customers. The division's profit margin widened and its customer churn rate, a measure of how many customers leave each month, hit a company record-low.

About $1 billion of the company's revenue came from data sent by cell phone and other wireless devices.

The company said it also installed 52 percent more DSL lines than it had in the year-ago quarter. It now has more than 2.9 million DSL lines in service.

Traditional wireline telecom revenues decreased 2.9 percent as the number of lines in service to homes and businesses dropped slightly for the quarter.

The nation's largest telecom company, based in New York, also said about 50 percent of its residential customers buy "bundles" of service, which package Verizon's local service with either long-distance or DSL. Rival AT&T Corp. announced last week that it would stop competing for residential customers, saying a recent regulatory ruling would increase its costs of providing local service and make it impracticable to bundle services together.

During the quarter, Verizon restated and reduced the number of its long-distance customers by 1.5 million, following an inquiry by the Securities and Exchange Commission. Despite the reduction, the company still reported a year-over-year increase, to 16.8 million long-distance customers, from 13.8 million for the same period a year ago.

For the first six months of the year, the company had profits of just under $3 billion, or $1.07 per share, up from $2.75 billion, or 99 cents per share, a year ago. Its revenues were $34.97 billion, up from $33.32 billion for the first six months of last year.

For the second half of the year, the company said it expects revenue to grow at least 4 percent,and profits to improve slightly.

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