Verizon Q3 Earnings Up on Strong Wireless Sales

Verizon Communications Inc. (VZ), the largest U.S. telecommunications company, said on Thursday its third-quarter earnings rose 4 percent on strong sales of wireless services and high-speed Internet lines.

Analysts said the results beat their expectations and hailed the strength of Verizon Wireless, which outperformed peers Cingular Wireless and Sprint Nextel Corp (S). Verizon Wireless is a joint venture with Vodafone Group Plc.

"Verizon Wireless again blew away its competitors on subscriber growth, and continues to be the strongest asset in Verizon's portfolio," Sanford C. Bernstein analyst Jeff Halpern said in a research note.

Verizon earned $1.87 billion, or 67 cents per share, compared with $1.80 billion, or 64 cents per share, a year earlier.

Before one-time items, Verizon earned 66 cents per share, compared with analysts' expectations of 64 cents per share, according to Reuters Estimates. Revenues rose 4.6 percent to $19.04 billion, ahead of analysts' estimates of $18.7 billion.

Verizon's shares rose more than 2 percent when the market opened but gave back some gains, trading up 13 cents to $30.72 on the New York Stock Exchange (search).

Faced with stiff competition for its traditional phone services from cable companies, Verizon has been spending billions of dollars to boost its wireless services and roll out fiber-optic lines to offer pay television and high-speed Internet. Verizon is also spending $8.6 billion to acquire MCI Inc. for its base of large corporate customers.

All of those efforts have raised investor concerns about the company's cash flow and earnings outlook. Verizon's shares have steadily trailed not only those of its peers but the Standard & Poor's 500 Index for months. The stock has underperforming the S&P by 24 percent since the start of the second quarter and traded near 3-year lows.

"We feel bad that the stock has drifted down as low as it did," Verizon Chairman Ivan Seidenberg told analysts on a conference call. "Hopefully the results this quarter and the visibility of our programs will make people somewhat more comfortable about what the program is as we go out into '06 and '07."

Verizon reaffirmed its forecast for capital spending of $15.3 billion to $15.5 billion this year, and said next year's spending would run between $15.4 billion and $15.7 billion, excluding costs at MCI. Goldman Sachs analyst Jason Armstrong said the forecast "should calm fears of runaway spending."

Verizon said Verizon Wireless added 1.9 million net new customers, more than double the number from larger rival Cingular Wireless, a joint venture of SBC Communications Inc. and BellSouth Corp.

Revenues at Verizon Wireless rose 14 percent to $8.4 billion, as average monthly revenue per user rose slightly from the second quarter to $50.13.

Revenues in Verizon's traditional telephone business fell less than 1 percent to $9.4 billion. While the company added 389,000 high-speed Internet lines, total phone lines were down 6.2 percent to 49.7 million from the same period a year earlier.

Verizon said its Fios fiber-optic phone, high-speed Internet and video service would expand within reach of an additional 3 million homes next year. The company has said it expects Fios to be near 3 million homes by the end of this year.

Verizon peers SBC Communications and BellSouth boosted their shares over the past few days by announcing billions of dollars in stock buybacks. Seidenberg said a buyback was a "good idea" that the company would likely consider in 2006.

He also said Verizon might consider shuffling its assets in some fashion next year, with a focus on building in growth areas, but "I don't think that we have the desire or the strategic need to be as acquisitive as we were in '05."