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Verizon's Profits Slip in Q3

Raymond McConville
News Analysis
Raymond McConville
10/29/2007

Verizon Communications Inc. (NYSE: VZ)'s net income fell 34 percent in the third quarter, a dip caused mainly by merger- and spinoff-related tax charges that amounted to 19 cents a share.

For the three months to September 30, Verizon earned $1.3 billion, or 44 cents a share, on revenues of $23.8 billion. In the same quarter last year the company earned $1.9 billion, or 66 cents a share, on revenues of $22.5 billion.

Table 1: Verizon's Q3 Earnings

3Q07 3Q06 y/y Change
Revenue (Millions) $23,772 $22,459 5.8%
Earnings (Millions) $1,271 $1,922 -33.9%
GAAP EPS $0.44 $0.66 -33.3%
Access Lines 42,316,000 45,973,000 -8.0%
Broadband Subscribers 8,000,000 6,600,000 21.2%
FiOS TV Subscribers 717,000 118,000 507.6%
Source: Verizon




Analysts were expecting earnings of $1.7 billion, or 60 cents a share, on revenues of $23.6 billion according to Reuters Research .

In wireline services, FiOS TV continues to grow strong, adding 202,000 new subscribers to bring the total to 717,000. FiOS Internet added 229,000 subscribers to bring its total to more than 1.5 million.

However, overall broadband subscribers adds were only 285,000, which calls into question how much of FiOS's success is coming at the expense of Verizon's DSL service. The costs of deploying FiOS ate into earnings by 9 cents a share.

In wireless, Verizon shows no signs of being adversely affected by AT&T Inc. (NYSE: T)'s exclusive offering of the iPhone. Verizon added 1.8 million wireless subscribers and saw total wireless service revenues increase by 15 percent from the same quarter last year.

Despite the fall in profits, investors seem to have priced many of the tax charges that led to the shortfall into Verizon's stock. Shares of Verizon have opened up $0.15 (0.33%) to $45.75.

— Raymond McConville, Reporter, Light Reading

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