Verizon Communications Inc's (VZ.N) quarterly revenue from its wireline business was less than expected due to weakness in its enterprise business, sending its shares down almost 2 percent.
After pushing Verizon's shares up 14 percent so far this year, investors zoned in on the wireline miss on Thursday even as Verizon handily beat Wall Street estimates for wireless subscriber growth and profitability.
Chief Financial Officer Fran Shammo told analysts on a conference call that Verizon's enterprise business was hurt by economic challenges "particularly in Europe" as well as foreign exchange issues and a decision to stop selling some products.
"While we continue to face challenges in the enterprise and wholesale market, we're confident the decisions we're making are good for the long term," Shammo said.
Wells Fargo analyst Jennifer Fritzsche said Verizon's revenue of $1.98 billion from Global Enterprise, Strategic Services, was below her expectation for $2 billion.
While Verizon saw strong revenue growth in its consumer wireline business, Shammo said that Verizon's addition of 120,000 net new FiOS television customers was fewer than Verizon had expected because an unusually high number of people moved out of the FiOS region in June.
Shammo said Verizon was reducing its target estimate for future FiOS TV growth by 20,000 to 30,000 from its previous estimate of 180,000 to 200,000 as the company is changing its prices to focus more on the profitability of the service.
In response to rumors about a dividend payment, the executive noted that the board of the company's Verizon Wireless venture with Vodafone Group Plc (VOD.L) does not plan to discuss a distribution at its next quarterly board meeting.
Vodafone shares fell 1.7 percent to 182 pence in London after the comment.
Verizon Wireless added 888,000 net new subscribers in the quarter, compared with the average expectation of about 666,000 from seven analysts.
"That's a terrific number," Roe Equity Research analyst Kevin Roe said, noting that Wall Street does not expect No. 2 mobile provider AT&T Inc (T.N) to add even half as many customers in the quarter.
The growth at the No. 1 U.S. mobile provider probably came at the expense of smaller rivals Sprint Nextel (S.N) and T-Mobile USA in particular, as those companies have been struggling to stem customer losses, Roe said.
Verizon Wireless is attracting customers with smartphones such as the Apple Inc (AAPL.O) iPhone.
Verizon's second-quarter profit rose to $1.83 billion, or 64 cents per share, from $1.61 billion, or 57 cents per share, a year earlier. The results were in line with analysts' estimates, according to Thomson Reuters I/B/E/S.
Revenue rose to $28.552 billion from $27.54 billion, while analysts were expecting $28.558 billion.
The company said it was on track to increase full-year earnings in the double-digit percentage range, implying a rise of at least 10 percent.
Its wireless service margin based on earnings before interest, tax, depreciation and amortization was 49 percent, ahead of estimates from four analysts for just above 47 percent.
The company said it expected profit margins in its wireline business to continue to improve in the second half of the year after increasing in the second quarter from the first quarter.
However, Verizon shares fell nearly 2 percent to $45.02 in morning trading. At Wednesday's close, the stock had risen more than 14 percent so far this year.
(Reporting By Sinead Carew; Editing by Lisa Von Ahn and Maureen Bavdek)
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