Continuing Slump in Demand Reduces Verizon’s Profit 46%

Verizon Communications Inc. said Tuesday that third-quarter profit slumped 46%, partly because demand for lines at the biggest U.S. local-telephone company fell for a second straight period.

Net income fell to $1.9 billion, or 69 cents a share, from $3.5 billion, or $1.27, a year ago when the company had $1.3 billion in gains from selling assets. Sales rose 2.8% to $17 billion. Verizon pared its sales-growth forecast for this year, citing the September terrorist attacks and the slowing economy.

The attacks damaged a lower Manhattan switching office, which will cost as much as $1.9 billion to repair, about twice Verizon’s $1-billion insurance policy, co-Chief Executive Ivan Seidenberg said on a conference call.

Verizon has been trying to balance slowing demand for local phone lines by adding customers for premium services such as high-speed Internet access.

“They’ve done well continuing to market and continuing to gain clients” for new services, said Brian Bruce, director of global investments at PanAgora Asset Management, which owns Verizon shares. “You have to expect that core business goes away--it’s just a matter of how fast.”

Costs to upgrade the New York-based company’s network helped boost depreciation and amortization expenses 5.9% in the quarter. Year-ago results were boosted by a per-share gain of 47 cents from selling assets such as wireless properties.

Excluding investment gains and losses and costs of 3 cents a share from the attacks, Verizon would have earned 78 cents, Chief Financial Officer Frederic Salerno said on the call. That’s up from 73 cents in the year-earlier period.

Verizon shares fell 89 cents to $49.30 in New York Stock Exchange trading.

Verizon, formed last year from the combination of Bell Atlantic Corp. and GTE Corp., had 62 million U.S. lines in September, down 1.4% from a year earlier. In the June quarter, Verizon reported a 0.4% decline, the first drop in eight years.

The attacks knocked out 200,000 Verizon phone lines and 20% of the data circuits it provides to the NYSE. Verizon managed to restore service to the NYSE six days later.

The company said sales will rise 4% to 5% in 2001, down from an already-reduced forecast of 5% to 6%. Per-share profit will be $3 to $3.03, including a 6-cent loss from the terrorist attacks, Verizon said. The previous forecast, given in July, was $3.07 to $3.12.