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Verizon in line, but warns
July 31, 2001: 12:57 p.m. ET

Telecom meets 2Q target, cautions on full year; wireless IPO delayed
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NEW YORK (CNNfn) - Verizon Communications Inc. reported higher second-quarter earnings Tuesday in line with Wall Street forecasts, but the nation's biggest local phone company warned it will miss 2001 revenue and earnings targets.

Separately Tuesday, Verizon Wireless said it has begun exploring alternative terms with Price Communications Inc. which the company planned to acquire before going public. However, Verizon has delayed the initial public offering of its wireless unit due to volatile market conditions. Verizon was to acquire Price for $2.06 billion in stock and the assumption of Price debt under the original terms. Both sides can opt to terminated the deal if it is not closed by Sept. 30.

For the second quarter, New York-based Verizon (VZ: down $1.00 to $55.02, Research, Estimates) earned $2.1 billion, or 77 cents a share, up from $2 billion, or 72 cents a share, a year earlier. Analysts on average anticipated profit of 77 cents a share on $17 billion revenue, according to earnings tracker First Call.

Revenue rose 5 percent to $16.9 billion.

Verizon also warned that the slowing economy will result in 2001 revenue growth of 5 to 6 percent, less than the previous 7 percent target. Verizon cut its 2001 earnings per share estimate to between $3.07 and $3.12 a share, less than the company's $3.13 to $3.17 range. The consensus of analysts surveyed by First Call is $3.12 a share.

Including charges of $3.1 billion, Verizon reported a net second-quarter loss of $1 billion, or 38 cents a share, compared with a profit of $4.9 billion, or $1.79 a share, a year earlier. The charges include a write down in the value of certain investments, merger transition costs and other charges.

"At the end of the day the slowdown t was more than we thought it would be," Chief Financial Officer Fred Salerno told analysts during a conference call Tuesday. "The economy clearly is at a crossroads. We don't know exactly when it reached that junction, but what I'd like to leave with you is that we've made some expense cuts that will stick to the ribs."

The company also recorded a $1.9 billion non-cash gain related to the restructuring of its investment in Cable & Wireless Communications PLC.

Revenue from Verizon's domestic telecommunications business grew to $11 billion. A big chunk of the gain came in Massachusetts, where it signed up 253,000 long-distance customers after entering the market in April.

Salerno told analysts that strict cost-cutting measures, including the elimination of 8,000 jobs across business units and the equivalent of an additional 8,000 through overtime reduction and consolidation of its call centers.

He also cautioned that the company could expect some regulatory rate reductions in the second half, which will hurt margins and revenue.

The company added 804,000 new long-distance customers in the quarter, bringing the total to 6 million nationwide, a 47.2 percent increase from a year earlier. The company increased its year-end subscriber target to 6.7-6.9 million subscribers.

Verizon received approval to offer long-distance service in Connecticut and anticipates approval to enter Pennsylvania. Last week, the U.S. Justice Department said the company must make more progress in opening local service to competition in Pennsylvania before getting its blessing for long-distance service in the state.

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Also in the second quarter, Verizon added 120,000 high-speed digital subscriber lines (DSL) that carry voice and Internet data, nearly four times the second-quarter 2000 number, the company said. Revenue from data transport increased about 25 percent.

Verizon Wireless, the company's mobile phone unit that is scheduled to be taken private later this year, added 808,000 new customers in the second quarter. That brought its total number of customers to 27.9 million. Wireless revenue increased to $4.4 billion, a 15.6 percent increase from a year earlier. graphic


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