Tue Jul 27, 2004
By Justin Hyde

WASHINGTON (Reuters) - Verizon Communications Inc. (VZ.N: Quote, Profile, Research) , the largest U.S. telephone company, on Tuesday reported higher quarterly earnings as better-than-expected growth in its wireless business offset declines in its traditional landline phone service.

Verizon said revenue growth for the rest of the year would top Wall Street estimates, and its shares rose 4 percent.

"I hope investors can get the sense that we're on to something here," Verizon Chairman and Chief Executive Ivan Seidenberg told analysts on a conference call. "We've got a while to go here, but we have the beginning of what you might expect from us in terms of how we transform our entire business."

Second-quarter net earnings rose to $1.8 billion, or 64 cents a share, from $338 million, or 12 cents a share, a year earlier. Year-ago earnings excluding one-time charges of $1.6 billion would have been 69 cents per share.

Revenues rose 6 percent to $17.8 billion, as a 25 percent increase in wireless sales more than made up for a 2.9 percent decline in wireline revenues. Analysts on average had forecast earnings of 60 cents a share on revenues of $17.4 billion, according to Reuters Estimates.

Like other Baby Bells, Verizon has bolstered its wireless division to maintain profits as customers drop regular telephone lines for cellular phones or switch to competitors. Verizon Wireless added 1.5 million customers in the quarter, raised its average monthly revenue per user to $50.80, and reduced customer turnover, or churn, to 1.45 percent.

Loop Capital analyst William Cram said the wireless results were "very strong," especially compared to results from Cingular Wireless, which is in the midst of buying AT&T Wireless (AWE.N: Quote, Profile, Research) to form the largest U.S. cellular company.

With an average of 860,000 new customers per quarter, "at this pace Verizon could organically regain the top spot in less than two years," he said.

FORECAST REVENUE GROWTH RATE RAISED

Verizon forecast revenue growth for the remainder of the year of 4 percent, above Wall Street estimates for 3 percent growth, and forecast earnings of at least $1.22 per share in the second half of the year, in line with analysts estimates.

The quarterly results from Verizon's domestic telecom arm were mixed. Verizon said while it added 280,000 digital subscriber lines during the quarter and raised long-distance revenues 14.7 percent to $1 billion, it lost 519,000 residential lines.

Analysts expect residential line loss at Verizon and other Baby Bells to stop over the next several months, due to AT&T Corp.'s (T.N: Quote, Profile, Research) decision last week to pull back from selling consumer services. But Verizon Chief Financial Officer Doreen Toben told Reuters it was too early to judge what effect AT&T's decision would have.
Expenses rose on increased pension and retiree health-care costs. Verizon also increased marketing and raised capital spending to expand its high-speed wireless data service and build a residential fiber-optic network.

Verizon has cut 13,272 jobs over the past year, and announced plans last year to cut 21,000 jobs, or 10 percent of its work force, in 2004. The company said while the job cuts saved $200 million at its wireline business, most of the savings were spent on promoting growing products, including high-speed Internet access. It also said it was on track with plans to cut $1 billion.

Shares of Verizon were up $1.35 to $37.85 in morning trading on the New York Stock Exchange. Its shares, along with those of SBC Communications Inc. (SBC.N: Quote, Profile, Research) and BellSouth Corp. (BLS.N: Quote, Profile, Research) have risen over the past few days after AT&T announced its retreat from residential markets.

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