Verizon Profit Misses Estimates as Customers Cut Voice

Tuesday, 25 Jan 2011 09:05 AM

 

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Verizon Communications Inc., the second-largest U.S. phone company, reported fourth-quarter profit that missed analysts’ estimates as customers spent less on voice plans.

Earnings, excluding pension, severance and merger- integration items, rose to 54 cents a share from 50 cents a year earlier, Verizon said in a statement today. The average estimate from analysts surveyed by Bloomberg was 55 cents.

Customers were able to spend less on wireless calls because of discounts in family and unlimited plans. New York-based Verizon and other carriers are trying to combat this trend by promoting data plans that let smartphones download games and connect to the Internet.

“What we’re learning is voice is becoming almost like an app, and people are pricing around that,” said Jennifer Fritzsche, an analyst at Wells Fargo Securities LLC in Chicago. She rates the shares “outperform” and doesn’t own them.

The company began selling service on its faster, fourth- generation network last quarter and will start selling Apple Inc.’s iPhone in February as it pursues this growth.

Sales fell 2.6 percent to $26.4 billion from $27.1 billion a year earlier. Analysts had anticipated $26.4 billion in revenue, according to the Bloomberg survey. Net income was $2.64 billion, or 93 cents a share, compared with $617 million, or 22 cents.

Verizon declined 1.3 percent to $34.78 in trading before exchanges opened. The stock, up 16 percent last year, had gained 29 cents to $35.24 in New York Stock Exchange composite trading yesterday.

Landlines

Sales declined in the division that sells fixed-line service to businesses and homes, as customers cut home phone service and the company’s wholesale business, which sells service to other providers, contracted.

Revenue for the landline business declined 2.8 percent to $10.3 billion. The unit has become a less significant source of revenue for Verizon as customers have substituted their landline service for digital voice service from cable companies and mobile phones.

Verizon and Dallas-based AT&T Inc. made a change in the way they account for pension expenses last month, which trimmed billions off of past earnings for both companies. The accounts, which provide health and retirement benefits for former employees, took a hit in the recession. Rather than spreading the losses out in future earnings, the companies will account for gains and losses in the year that they occur.

Wireless Customer Gains

In the wireless business, Verizon added 872,000 contract customers in the quarter. That beat the 650,000 that Fritzsche had forecast. Mike McCormack, an analyst at Nomura Securities International Inc., predicted the company would add 724,000 and Chris Larsen at Piper Jaffray Cos had estimated 600,000 subscribers.

Verizon will spend money to subsidize the iPhone for customers this year, which may hurt margins in the short-term, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. However, the popularity of the device, which has been exclusively available on Verizon’s largest rival AT&T in the U.S., will ultimately drive customer growth and higher bills, Moffett said in a note to investors.

Verizon will make the iPhone 4 available to current customers on Feb. 3, and new customers will be able to buy it a week later. A version with 16 gigabytes of memory will sell for $199.99 and a 32-gigabyte model will cost $299.99.

The subsidy, at an estimated $400 for each phone, may cost Verizon $3 billion to $5 billion in its first year, analysts have said. John Hodulik, a New York-based analyst at UBS AG, said Verizon could sell 13 million iPhones this year, which would mean a price tag of about $5.2 billion for the carrier.

© Copyright 2014 Bloomberg News. All rights reserved.

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