Verizon Slashes Profit Forecast
Verizon Communications Inc., the nation’s largest telephone company, slashed its 2003 earnings forecast Tuesday because of the cost of new labor pacts and weak demand for traditional local service as more customers shift to wireless phones.
Verizon, which is California’s second-largest carrier, said it expected full-year 2003 earnings of $2.56 to $2.60 a share, excluding one-time items, compared with a previous forecast of $2.70 to $2.80 a share. Verizon reiterated that 2003 revenue growth would be flat to 2%.
The weaker outlook pushed telecommunications stocks down and reflects an industry that has foundered as local and long-distance carriers plow into each other’s markets to fight for high-spending customers.
“There’s just a massive industry food fight for market share,” said Henry Asher, president of Northstar Group, a New York-based money manager. “People are expecting better and better service and virtually unlimited calls,” and Verizon keeps “trying to differentiate themselves, but it’s pretty much a commoditized product.”
New York-based Verizon said it had offered early retirement packages to most union and management workers to cut costs. It expects to take a charge for these severance costs in the fourth quarter. It also cut its capital spending budget by $1 billion to a range of $12 billion to $12.5 billion.
Verizon has pinned its future growth on newer services such as wireless, long-distance and high-speed Internet access, but these segments face high costs and offer slim margins.
“The only way to make a lot more money is to have a tremendous, growing number of users, which is unlikely. And the second is to cut costs, and, well, look at the union contract,” Asher said.
Verizon this month reached new labor agreements with two unions representing 35% of its workforce. The pacts will cut Verizon’s average annual labor costs by about 60% but will give workers an 8% increase in wages over five years.
Verizon shares fell $1.58 to $33.13 on the New York Stock Exchange. Shares of other telephone companies also dropped, including SBC Communications Inc., which fell 88 cents to $22.52, and BellSouth Corp., which fell $1.04 to $24.35.
Also Tuesday, cell phone provider Nextel Communications asked a federal judge to block advertising by Verizon Wireless that claims it offers superior walkie-talkie service on its mobile phones.
National ads being aired by Verizon claim its new service operates on the “best” and “most reliable” wireless network. The ads show frustrated people unsuccessfully trying to use other walkie-talkie phones -- presumably Nextel’s, since Nextel was the only other national carrier offering the service.
Reuters, Associated Press and Bloomberg News were used in compiling this report.
