Verizon Beats Forecasts With $1.76B Profit

Verizon Communications Inc. (VZ) posted a $1.76 billion profit in the first quarter, surpassing expectations, as it improved on its already industry-leading performance while the DSL business posted its fastest growth yet.

The company declined after Wednesday's report to provide any comment regarding its next move in a tense bidding war to acquire long-distance carrier MCI Inc. (MCIP), which over the weekend embraced a $9.75 billion offer from Qwest Communications International Inc. (Q).

Executives refused to say whether Verizon will act by a Friday deadline to improve on its $7.5 billion deal with MCI or possibly walk away from the three-month affair. Analysts and investors widely expect that Verizon will offer more, though again not as much as Qwest has bid.

Verizon's first-quarter results exceeded Wall Street forecasts on multiple fronts, though a slight decline in profit margins raised some concern. Verizon's shares jumped $1.19, or 3.5 percent, to $35.19 on the New York Stock Exchange (search).

Capital expenditures also exceeded some estimates as Verizon pushed ahead with the upgrade of its wireless network for multimedia services and an ambitious project to replace all of its copper phone lines with fiber-optic cables that can deliver cable television and far speedier Internet access.

But the first-quarter uptick in spending did not result in a new forecast for the full year. Doreen Toben, Verizon's chief financial officer, reiterated projections that capital investments for all of 2005 would be about 10 percent higher than 2004's spending of $13.3 billion.

Verizon said it is now selling its FiOS high-speed Internet service over fiber in more than 250 communities, and stood by projections it will have fiber in place in the vicinity of 3 million homes by the end of this year.

While several deals with prominent cable channels have been announced, Verizon remained noncommittal about the timing of the cable TV launch. Officials declined to stand by earlier indications that video service might debut in one or more markets by midyear, reverting back to vague projections for a launch sometime during the second half of 2005.

Verizon's first-quarter profit amounted to 63 cents per share. In the same period last year, Verizon earned $1.20 billion, or 43 cents per share, weighed down by $446 million in costs to cover early retirement packages as the company reduced its work force by 21,000 employees.

Revenues totaled $18.18 billion in the most recent quarter, up from $17.06 billion in the year-ago period.

Verizon Wireless, owned in partnership with Vodafone Group PLC (search), contributed $7.41 billion, or 40.8 percent of the revenues, posting a fifth straight quarter of better-than 20 percent growth in sales. Since Verizon is the controlling shareholder in the cellular venture, accounting rules dictate that all of the wireless operation's sales be included in Verizon's revenue total rather than a proportionate share.

The wireless business increased its customer base by a better-than-expected 1.64 million subscribers for a quarter-ending total of 45.5 million.

Verizon Wireless also reduced the monthly rate of customer losses to 1.33 percent of its customer base, down from 1.43 percent in the final months of 2004 and well below the turnover rate at most of its major rivals.

There also was modestly good news in the traditional wireline phone business, which has been shrinking for several years with the emergence of cell phones, the replacement of second phone lines with high-speed Internet connections and, more recently, Internet-based phone services offered by cable companies and others.

Wireline revenues declined again, totaling $9.50 billion, but the 1.2 percent drop was the smallest in nearly four years. The number of lines in service fell by 775,000 during the quarter to 52.2 million.

The broadband and data portion of wireline revenues rose 11.6 percent to $2.1 billion as the number of high-speed Internet subscribers grew by 385,000 for a total of 3.9 million, up 48 percent compared with a year earlier.

Long-distance phone revenues rose 8.3 percent to $1.1 billion as the customer base grew by 1.87 million to roughly 18 million.