PHILADELPHIA – Verizon Communications, the No. 1 U.S. local telephone, on Tuesday posted a 46 percent drop in third-quarter net income as the weak economy and Sept. 11 attacks weighed on results, and it cut its growth outlook for the year.
Net income totaled $1.9 billion, or 69 cents a share, compared with $3.5 billion, or $1.27 per share, a year ago.
Excluding several one-time items, third-quarter profits rose 2.8 percent to $2.04 billion, or 75 cents a share, compared with $1.98 billion, or 73 cents a share, a year earlier. Verizon said the attacks on New York and Washington, D.C. cut the current quarter's earnings by 3 cents a share.
Wall Street analysts expected Verizon's earnings to be in the range of 74 cents a share and 80 cents a share, with a mean forecast of 77 cents a share, according to research firm Thomson Financial/First Call.
Verizon shares closed at $49.30, down 89 cents, or 1.77 percent, on the New York Stock Exchange. The stock has fallen about 5.4 percent in the past year, but has outperformed the North American Telecommunications Index by about 45 percent.
"Some people may have been taken aback by the drop in core telecom revenues," said Guzman & Co. analyst Patrick Comack. "They continue to put up pretty good numbers in growth areas, but that's being partially offset by the economy and shift in technology as landline customers switch to wireless (telephones)."
Some analysts also expressed concern that Verizon's $1 billion insurance policy would cover only part of the company's estimated $1.7 billion to $1.9 billion in costs related to the Sept. 11 attacks in New York and the Washington area. A final tally of costs and lost revenues was not yet available, and the company may receive state or federal aid in addition to its insurance coverage.
Sept. 11 Brought Havoc
The Sept. 11 attacks that toppled the World Trade Center destroyed or disrupted 200,000 Verizon telephone lines, 3.6 million data circuits, and 10 cellular towers. Businesses, including the New York Stock Exchange, lost service for several days as Verizon cleared chunks of steel and debris that slammed through a network facilities, crushed communications cables, and buried manholes that provide access to underground networks.
Verizon said nearly all of the residential and business customers in Lower Manhattan now have some form of temporary service, and more permanent fixes would be put in place over the next several months.
During the third quarter, Verizon's adjusted revenues rose 3.7 percent to $17.0 billion, compared with $16.4 billion a year ago. Its core Domestic Telecom revenues fell 1.9 percent to $10.7 billion. Telephone access lines dropped 1.4 percent, an acceleration from the 0.4 percent drop in the second quarter, analysts said.
Domestic Telecom revenues were hurt by several factors, including the weak economy, the Sept. 11 attacks, a slowdown in business demand, and a shift away from traditional local telephone service, Verizon Chief Financial Officer Fred Salerno said in a conference call with analysts and reporters.
Verizon, like other traditional telephone companies, has been concentrating on wireless, data, and Internet services as new sources of growth. Verizon, however, still gets most of its profits from basic telephone services.
Still, Verizon had "expense controls in place to allow us to meet the numbers despite softness in the revenue line," Salerno said. The company, which has a work force of 256,000 employees, said it cut the equivalent of 5,600 jobs in the quarter by limiting overtime, eliminating contract workers and layoffs.
Data revenues rose 14 percent, which fell short of Credit Suisse First Boston's forecast of 15 percent, and slowed from the second-quarter growth of 20 percent.
Verizon said it expects profits in the fourth-quarter, including costs related to the Sept. 11 attacks, to be in the range of 77 cents to 80 cents a share. It expects revenues to increase 3 percent.
For the full year, Verizon expects profits to be in the range of $3.00 a share to $3.03 a share. Excluding costs related to the attacks, profits will be in the range of $3.06 a share to $3.09 a share.
Wall Street analysts expect Verizon to post earnings of 80 cents a share for the fourth quarter, and $3.06 a share for the full year, according to First Call.
Verizon said revenues in 2001 will increase 4 percent to 5 percent, down from a previously tempered forecast of 5 percent to 6 percent growth. Verizon first cut its growth outlook in July and had initially expected revenues to grow 7 percent.
"Our view for the remainder of this year is shaped by the economic outlook, and we continue to take the appropriate steps to manage through the declining economy and to position ourselves for the recovery," said Chuck Lee, Verizon's chairman and co-chief executive officer.
As previously reported, Verizon's wireless joint venture, Verizon Wireless, added fewer wireless and long-distance customers in the third quarter than in the second quarter.
Salerno said Verizon Wireless may launch its initial public offering by the end of this year or early next year, depending on market conditions. Verizon Wireless aims to use the proceeds from the IPO, which analysts previously estimated would total about $5 billion, to pay for a portion of the licenses it expects to acquire from bankrupt NextWave Telecom Inc.