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Verizon dips on earnings
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August 8, 2000: 4:39 p.m. ET
Telecom posts disappointing 2Q, lowers outlook; $800M DSL deal set
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NEW YORK (CNNfn) - Shares of labor-troubled Verizon Communications, the nation's largest local phone company, lost more than 10 percent of their value Tuesday after the company reported weaker-than-expected second-quarter earnings and lowered its outlook for future profits.
The New York-based company, which is in its third day of a strike by about a third of its employees, reported before the markets opened Tuesday that it earned $2.0 billion, or 72 cents a share excluding a one-time gains, compared with $1.9 billion, or 67 cents a share, on the same basis a year earlier. Analysts surveyed by earnings tracker First Call forecast that Verizon (VZ: Research, Estimates) would earn 83 cents a share in the period.
 Verizon was formed through the merger of Bell Atlantic and GTE. The results it reported Tuesday include both companies' operations.
Verizon's stock closed down 5-5/8 at 42-1/4 on the New York Stock Exchange.
Including gains the company received from the sale of assets and a pension settlement, net income for the quarter came to $4.9 billion, or $1.79 a share, compared with $1.9 billion, or 70 cents per share, in the year-ago quarter. Revenue rose 7.4 percent to $16.6 billion from $15.5 billion. Wireless revenue increased 19 percent to $4.0 billion, while its core telecom revenue rose 4.8 percent to $11.2 billion.
Company lowers estimates through 2002
In addition to reporting disappointing results, Verizon lowered its forecasts for future earnings. The company said it expects its revenues to grow about 8 to 10 percent a year and its full-year 2000 earnings to be $2.90 to $2.94 a share. Analysts had expected the company to earn $3.15 a share this year, according to research firm First Call/Thomson Financial.
Under the new guidance, the company expects to earn between $3.18 and $3.28 per share next year, compared with the consensus forecast of $3.50 a share.
Buys control of high speed Internet provider
Separately, Verizon said it agreed to acquire a controlling interest in digital subscriber line (DSL) company NorthPoint Communications Group Inc. (NPNT: Research, Estimates). The transaction calls for Verizon to invest $800 million in a new publicly traded company that will be 55 percent owned by Verizon and 45 percent by NorthPoint. This new company will retain the NorthPoint name and will combine the DSL operations of NorthPoint and Verizon, giving it 600,000 DSL lines by the end of this year.
DSL is a fast-growing technology that provides high-speed Internet access over standard copper telephone wires. DSL competes with cable modems as a method of getting broadband Internet access into homes and businesses.
Of the $800 million Verizon is paying, $350 million will go to NorthPoint shareholders in cash, which amounts to about $2.50 per share. The other $450 million will go to expand the new company's DSL network.
NorthPoint also reported a loss Tuesday of $112 million, or 85 cents a share, which was in line with First Call forecasts. That compares with losses of $79.9 million in the first quarter and $37.9 million in the year-earlier period. The company had second-quarter revenue of $24.4 million, a 22-percent rise from $20.0 million in the first quarter, and almost ten times the $2.5 million of a year earlier.
NorthPoint shares rose a slight 9/16 to 15-9/16 in response to the news.
Bear Stearns analyst James Henry said that the transaction makes sense for Verizon.
"All the Bell companies have been making a very aggressive push into high speed, broadband Internet access," Henry told CNNfn's Ahead of the Curve program Tuesday. "They've met with varying degrees of success. SBC Communications (SBC: Research, Estimates) is the clear leader. Verizon, I think, is a close second." [365KB WAV] [365KB AIFF] 
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