Verizon beats Street but faces challenges

The communications giant manages to top expectations, but its earnings aren't exactly inspiring.

By Kim Peterson Oct 22, 2010 11:01AM
Credit: (© Eric Risberg/AP)
Caption: Droid Incredible cell phoneVerizon Communications (VZ) saw its third-quarter profit drop 25%, mostly related to pension settlements with departing employees. Investors seemed to react with a collective shrug, however, sending shares down a little more than 1% in morning trading.

The company also saw slower growth in its wireless division as people continued to embrace prepaid cell phone plans or Apple's (AAPL) iPhone. But still, Verizon beat estimates for profit and growth.

The company reported an $881 million profit, or 31 cents a share, for the quarter, down from $1.18 billion, or 41 cents a share, in the same period last year.

But excluding one-time payments related to pensions and other costs, the profit rose to 56 cents a share. Analysts had expected 54 cents a share.

Quarterly revenue was $26.5 billion, just beating estimates of $26.3 billion. That's down from $27.3 billion in sales a year ago, but that period also included operations that were eventually sold to Frontier Communications. If you exclude those operations, the year-ago revenue was $25.9 billion.Verizon Communications

Verizon disappointed some analysts by adding only 584,000 new wireless customers. An analyst at Oppenheimer was expecting 625,000, while another at Morgan Stanley had predicted 665,000, Bloomberg reported.

"While only a hair below published consensus, we think 584,000 will be viewed as disappointing," wrote one Credit Suisse analyst, according to The Wall Street Journal. "In addition, the EPS beat and guidance increase will do little to inspire investors as they came largely from lower growth and taxes."

Verizon did give some hopeful guidance for the rest of the year, saying profit in the second half should improve by 5% to 10% over the first six months.

The trend of people ditching land-line phones for cell phones continued to whack at Verizon's fixed-line business. Sales fell by 3.6% to $10.3 billion in the quarter. Fewer than 25% of Verizon's customers use smart phones, and executives were quick to point out the opportunity there, Dow Jones reported.

"It's hard to believe we're in the early innings of this revenue growth opportunity," chief financial officer John Killian told analysts.

Those numbers could change quickly if Verizon is able to sell the iPhone next spring, as some news reports have said. So far, Verizon has made a huge commitment to selling the Droid phone, which uses software developed by Google (GOOG).

Verizon's enthusiasm for the Droid has been a major factor in the platform's success this year.
1Comment
Oct 22, 2010 12:36PM
avatar
Verizon has gotten damn greedy...in a recession when money is tight the consumer is seeing more expensive plans, less minutes, and forced to either get a crappy basic phone or have to pay a "forced" data package fee every month. We take the phones on our boat near the border and always get nailed for int'l roaming when we are not. Customer service is terrible and rude, basically told us to turn the phone off then...why have it? Many of my friends have dropped them for prepaid phones, we went to basic phones and plans and when they expire we'll be done with verizon as well.  
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