Verizon Posts Loss, Cuts Target for the Year
Battered by industrywide price pressures, write-offs and falling demand, Verizon Communications Inc. posted a $2-billion second-quarter loss Wednesday and lowered its full-year revenue and profit targets.
But in a potent sign of how bad things have become among telecommunications companies, Verizon’s stock shot up on the news, adding $2.80, or more than 9%, to close at $33 on the New York Stock Exchange. Shares of fellow local phone companies SBC Communications Inc. and BellSouth Corp. also advanced.
“Everyone expected a lot worse,” said Phillip Redman, research director at Gartner Inc.
New York-based Verizon, the nation’s largest local phone provider, remains one the industry’s strongest and most dominant players. But it faces many of the same challenges as its more troubled rivals. In addition to sour market conditions, Verizon is carrying a heavy debt load and losing revenue as customers unplug extra phone lines and shift their communications to cell phones and e-mail.
Verizon said sales fell almost 2% to $16.8 billion for the quarter ended June 30, down from $17.1 billion in the same quarter last year. The company’s net loss was equal to 78 cents per diluted share, compared with a loss of 38 cents for the same period last year.
Company officials also lowered guidance on Verizon’s full-year performance, saying 2002 revenue would be flat to down 1% (revised from flat to 1% growth), and on its earnings per share before one-time items of $3.05 to $3.09 (down from $3.12 to $3.17).
Verizon’s results were weighed down by extra charges totaling $4.2 billion, or about $1.55 per diluted share. They included $862 million for the reduced value of Verizon’s investments in Telus Corp., Cable & Wireless and others, plus $475 million for employee severance costs and $114 million to settle a lawsuit over the company’s canceled purchase of NorthPoint Communications Inc.
The one-time items also include a $183-million charge for unpaid accounts owed by WorldCom Inc. before its recent bankruptcy filing, and a $2.4-billion write-down of the value of Verizon’s stake in Genuity Inc., the Internet services firm that Verizon made independent as part of the merger between Bell Atlantic and GTE.
Verizon maintained a 10% stake in Genuity and has the right to re-integrate the company in the future. Last week, Verizon announced it would not reclaim the money-losing operation because it would add to the company’s debt and further depress earnings.
Without the one-time items, Verizon posted earnings of $2.1 billion, or 77 cents a share, which met analysts’ expectations that ranged from 74 cents to 79 cents. At the quarter’s end, Verizon’s debt totaled $58.6 billion (after this year’s reduction of $4.7 billion), and the company had about 39 million residential lines in service (down by 355,000) and 20.8 million business lines (down by 479,000).
“A $2-billion loss is a big number,” said analyst Redman of Gartner. “But they still met their earnings per share, and made only minor adjustments in their projections.... It could have been worse in this economy.”
The good news for the company included strong growth in its long-distance business and a better-than-forecast increase in subscribers at Verizon Wireless, the mobile phone joint venture of Verizon and Europe’s Vodafone. The venture, already the nation’s largest mobile-services provider, added 1.1 million customers in the second quarter to bring its total to 30.3 million.
In other technology earnings news Thursday:
* Adobe Systems Inc., the largest maker of publishing and graphic-design software, reduced its forecast for third-quarter sales to $270 million to $290 million and profit to 18 cents to 23 cents a share. A year ago, San Jose-based Adobe had sales of $292.1 million and profit of 28 cents.
* Computer Sciences Corp., the third-largest U.S. computer-services company, said its fiscal first-quarter profit rose 66%, to $79 million, or 46 cents a share, from $47.7 million, or 28 cents, a year earlier. Sales at the El Segundo-based company rose 1.9% to $2.76 billion.
* Ingram Micro Inc., the world’s biggest computer-products distributor, posted a second-quarter profit, but sales fell 11%, to $5.35 billion, because of slower demand worldwide. Net income at the Santa Ana-based firm was $8.8 million, or 6 cents a share, compared with a loss of $12 million, or 8 cents, a year earlier.
* Skyworks Solutions Inc., a wireless-phone chip maker formed by the merger of Alpha Industries Inc. and a unit of Conexant Systems Inc., posted a wider fiscal third-quarter loss and said it would cut 450 jobs. Skyworks had a net loss of $181.9 million, or $1.92 a share, compared with a loss of $142.4 million, or $1.64, in the year-earlier period. Sales more than doubled to $112.9 million from $51 million. The cuts will reduce its work force to 3,750.
