By Sinead Carew
July 18 Verizon Communications Inc said
strength in its wireless business was tempered by weakness in
its traditional wireline unit, producing softer-than-expected
revenue growth for the quarter and sending its shares down
nearly 2 percent.
The telecommunications company said on Thursday that
corporate and government customers were cutting costs, partly
offsetting better-than-estimated wireless customer growth. Also,
wireless profit margins were hurt by higher costs.
While analysts described the results as solid, they noted
investors would have liked better news since Verizon shares had
risen more than 17 percent since the end of 2012 in anticipation
of strong growth prospects.
"The results were very good but at these valuations even
very good might not be good enough," said Moffett Research
analyst Craig Moffett.
Some of Verizon's strong valuation has been due to investor
expectations it would be able to increase its earnings by buying
out Vodafone Group Plc's 45 percent stake in their
Verizon Wireless venture.
But Chief Financial Officer Fran Shammo did not address the
matter during his earnings call. "Their silence on the topic of
buying in the Vodafone stake could be disappointing to some
investors," Moffett said.
In an interview with Reuters, Shammo declined to comment on
the prospects for a Vodafone deal.
The executive said about 60 percent of its decline in
wireline revenue was due to shrinking government spending while
the rest came from corporate spending cuts. He added that he was
not expecting any big turnaround for the rest of the year.
While operating revenue rose 4.3 percent at $29.8 billion
from $28.55 billion, it was shy of estimates of $29.83 billion
according to Thomson Reuters I/B/E/S.
Its wireless profit margin came to 49.8 percent, based on
earnings before interest, taxes, depreciation and amortization,
which was below five analyst estimates between 50 percent and
Evercore analyst Jonathan Schildkraut noted that
higher-than-expected wireless customer departures, known in the
industry as churn, would have increased the company's costs.
Verizon reported churn of 0.93 percent, compared with his
expectations for 0.9 percent.
Verizon may have lost some customers to No. 4 U.S. wireless
provider T-Mobile US Inc, according to Moffett.
T-Mobile US is pushing hard to stem customer net losses by
aggressive cost-cutting and marketing.
NOT A 'BLOW-DOWN-THE DOORS' QUARTER
Analysts said ahead of the earnings report that they expect
Verizon, the first of the U.S. telecommunications companies to
report second-quarter results, to take the lion's share of
mobile customer growth in the quarter.
But they also expect competition to get tougher as the year
progresses because No. 3 U.S. mobile service provider Sprint
Corp, which was recently bought by Japan's SoftBank Corp
, may be able to compete much better with the help of
On the plus side, Verizon Wireless, the biggest U.S. mobile
service provider, added 941,000 subscribers in the second
quarter, which compared well with the average expectation for
836,500 from six analysts contacted by Reuters. Estimates ranged
from 700,000 to 909,000.
It also forecast that net subscriber additions would
increase sequentially in the remaining two quarters of 2013.
"It wasn't a blow-the-doors-down quarter, but it was a solid
quarter," said Schildkraut, who was impressed with Verizon's
customer growth. "It's an expensive stock and they need to do a
lot to support that."
Excluding a pension-related gain, Verizon said it earned 73
cents per share, compared with expectations for 72 cents,
according to Thomson Reuters I/B/E/S.
Verizon said it increased its capital spending budget to
between $16.4 billion and $16.6 billion for the full year,
compared with its previous target of $16.2 billion.
The company said it will need to spend more as it
anticipates higher demand for wireless data services, and will
have to start using a new chunk of wireless airwaves.
Verizon added 161,000 net new FiOS Internet customers and
140,000 net new FiOS video connections in the quarter.
Verizon's earnings rose to $2.25 billion, or 78 cents per
share, from $1.83 billion, or 64 cents, in the year-ago quarter.
AT&T Inc, the No. 2 U.S. mobile provider, is scheduled
to report earnings on July 23, and Sprint is due to report on
Verizon shares were down 92 cents, or 1.8 percent, at $49.82
in late-morning trade on New York Stock Exchange.