Going forward, the carrier is cautiously optimistic, predicting revenues to remain flat or rise by up to 2 percent in 2003. That’s a bit better than the roughly 1 percent increase analysts have forecasted.
Highlights of today's report:
- Revenue, net income, and profits are up. For the last quarter of 2002, revenues rose 1.2 percent to $17.2 billion. Net income totaled $2.3 billion, or 83 cents a share, compared with a loss of $2 billion, or 75 cents a share, for the year-ago quarter. Before one-time items, Verizon said its profits rose to $2.2 billion, or 79 cents a share, from $2.1 billion, or 77 cents a share, for the same period last year.
For the full year 2002, Verizon said its profits rose to $4.1 billion, or $1.49 per share, on revenue of $67.6 billion. That’s compared to the $389 million, or 14 cents a share, the company earned in 2001 on revenues of $67.2 billion.
- There's progress in DSL and wireless. Verizon said it added 148,000 new DSL customers during the fourth quarter, bringing the total number of customers to 1.8 million. “We feel we had a really good year in DSL,” Verizon CEO Ivan Seidenberg said on today’s conference call with analysts. Verizon Wireless added 964,000 new subscribers and saw its revenues jump 16.3 percent to $5.2 billion during the fourth quarter.
- Sizeable one-time gains were offset by charges. During the quarter, Verizon reported nearly $1.2 billion in one-time gains, mainly associated with tax benefits. These gains were largely offset by $1.1 billion in one-time charges, which were mainly connected with the Genuity Inc. (Nasdaq: GENU) bankruptcy, and pension and benefit costs related to prior layoffs (see Genuity Gasps for Breath).
- Debt's reduced. The carrier cut debt by $10.2 billion in 2002, nearly 17 percent. Overall debt fell to $52.6 billion from $63.3 billion, and Verizon said it expects that number to fall to between $49 billion and $51 billion by the end of 2003. The company also reduced its commercial paper by 83.6 percent in 2002, cutting them to $2.1 billion from $12.8 billion.
- The downside is local. While overall revenues for the quarter rose 1.2 percent to $17.2 billion, Verizon’s core local telephone revenues dipped 2.6 percent, and its telephone access line revenues dropped 3.7 percent. The company blamed these losses on what it called unfair regulatory pressures, along with wireless and broadband substitution and a weak economy.
- Outlook is steady. For 2003, Verizon said it expects its earnings per share to be between $2.70 and $2.80 before one-time items. The company also expects capital spending levels to remain about the same as 2002, with a target between $12.5 billion and $13.5 billion for the year. For the first time, however, that number includes non-network software, which has previously been reported separately.
Competitive carriers, too, have been struggling in the sluggish economy. Last week, AT&T Corp. (NYSE: T) announced a revenue loss of 8.6 percent for the quarter (see BellSouth Reports Q4, SBC's Revenues Slide, and AT&T Results Disappoint).
Industry observers say Verizon managed better results than its peers in large part thanks to its wireless results. “Verizon is doing very well in its wireless division,” says Davenport & Co. LLC analyst F. Drake Johnstone, pointing out that the carrier also did better on the data growth side than its competitors.
Verizon, which holds a 55 percent stake in Verizon Wireless, also said this morning it will withdraw an initial public offering registration for the wireless joint venture. The need for new sources of funding is no longer there, the carrier said, due to the business’s strong cash flow, as well as a favorable Supreme Court decision on a wireless spectrum auction.
Verizon continues to grouse about governmental unbundled network elements platform (UNE-P) regulations, which are currently under Federal Communications Commission (FCC) review. The regs require RBOCs like Verizon to lease elements in their networks, like switches, to competitors at low fixed wholesale prices (see Will Powell Pull the Plug?). For the fourth quarter, Verizon claims it lost more than 400,000 access lines to UNE-P competition.
Verizon doesn’t expect much improvement this year. “Our view of the economy is that there will not be a significant boost… in 2003,” says Verizon's chief financial officer, Doreen Toben. “We have assumed business as usual for 2003… meaning that UNE-P will be around for a while longer, which is unfortunate.”
A question mark hangs over Verizon's long-distance activities. In return for opening up their networks to competitors, the RBOCs have received regulatory approval to enter the long-distance markets in many states (see RBOCs Get Long Distance Go-Ahead). Verizon says it added 566,000 new long-distance customers during the fourth quarter, reaching a total of 10.4 million customers, making it the third largest long-distance customer behind AT&T and WorldCom Inc. (OTC: WCOEQ).
Ironically, though, while the number of Verizon long-distance customers is growing, the company saw its long-distance revenues in the quarter shrink. Verizon claims the decline is due to a one-time charge, though at least one analyst sees a trend:
“Even if there is a one-time charge, the last few quarters show that the revenues aren’t growing much,” says Davenport's Johnstone. “If the Bells had realized how awful the long-distance market was, they probably would have been better off not opening their networks to competitors... Be careful what you wish for.”
In the end, Johnstone believes, the chief value of long-distance service may lie in its value as a customer retention mechanism, which can then be used to offer popular bundled packages.
Overall, investors seemed enlivened by the rare spot of telecom good news. Following this morning's announcement, Verizon's stock price jumped more than 3 percent to $37.19 a share. Lehman Brothers also upgraded the carrier from Equal-Weight to Overweight following the report.
— Eugénie Larson, Reporter, Light Reading