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Verizon profit falls on onetime costs

August 1, 2006 By ECN Staff

Copyright 2006 MarketWatch.com Inc.
All Rights Reserved
MarketWatch
August 1, 2006 Tuesday 9:02 AM EST
Jeffry Bartash, MarketWatch
From Lexis Nexis

WASHINGTON (MarketWatch) — Verizon Communications on Tuesday said second-quarter profit fell nearly 24% owing to severance and merger-integration costs, but the company racked up market-leading gains in wireless and high-speed Internet customers.

The New York-based communications giant (VZ) posted net income of $1.6 billion, or 55 cents a share, down from a year-ago profit of $2.1 billion, or 75 cents a share.

Revenue rose nearly 26% to $22.68 billion from $18.05 billion a year earlier, reflecting a contribution from MCI Inc., which Verizon purchased in January. Quarterly revenue growth amounted to a smaller 2.3% on an adjusted or pro-forma basis.

Wireless accounted for 41% of the company’s total revenue. As the Dow Jones Industrial Average component reported last week, the mobile business added 1.8 million net customers, tops in the industry.

Excluding one-time costs, Verizon said it would have earned $1.87 billion, or 64 cents a share, compared with $1.77 billion, or 63 cents, in the year-earlier second quarter.

On that basis, Verizon had been expected to earn 62 cents a share on revenue of $22.78 billion, according to the average estimate of analysts polled by Thomson First Call.

While Verizon’s wireless unit keeps growing like gangbusters, the company’s traditional local-phone segment is under intense pressure as new rivals and alternative technologies erode its customer base.

To offset losses in that part of its business, Verizon has embarked on a multibillion-dollar fiber network construction project that would enable the company to offer the nation’s faster Internet speeds as well as a pay-television service to rival the cable industry.

Verizon also bought MCI Inc. last year to obtain a long-distance network with direction connections to thousands of large corporations around the world.

Many investors are still not convinced the company’s costly strategy will pay off, however, and Verizon’s stock has hovered in a narrow range over the past year.

On Monday, the stock rose 9 cents to close at $33.82.

Segment breakdown

Verizon Wireless, which Verizon co-owns with U.K.-based Vodafone Group plc (VOD) , grew by 18% to $9.3 billion. It ended the quarter with 54.8 million wireless subscribers.

Verizon has led the industry in quarterly subscriber growth for most of the past two years, adding more than 1.5 million net customers in each of the last nine quarters.

One of the keys to the company’s success has been its ability to keep customers loyal. The company’s churn rate — the industry statistic measuring the rate at which customers leave — finished once again at an industry-low 1.13%.

Average monthly revenue per user rose 0.6% to $49.71 from the year-ago quarter, but it was up 2.1% compared to the first quarter. Sales of services such as text messaging drove the growth, as Verizon Wireless topped $1 billion in quarterly data revenue for the first time ever.

Verizon’s wireline segment, which includes MCI’s long-distance business, saw a 35% gain in revenue to $12.8 billion, including $4 billion from data services such as high-speed access.

Verizon didn’t disclose separate results for MCI, but revenue for the company’s wireline business fell 6.2% on a pro-forma basis, mostly reflecting the decline in MCI’s consumer long-distance business.

Verizon added 440,000 high-speed Internet customers to end the June quarter with a base of 6.1 million. The company said it signed up 111,000 customers to receive fast Internet access over its newly laid fiber lines.

Total access lines in service fell again, as expected. The drop of 7.4% put access lines at 47 million.

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