Verizon: More Capex Cuts
Verizon Communications Inc.’s (NYSE: VZ) stock price was on the rise today following the company’s earnings release, which showed that it had met its profit goals for the quarter. But the nation's largest local phone company also slashed its capital spending budget, saw its sales decline, and yet again lowered its full year 2002 guidance (see Verizon Cuts Spending, Debt, Guidance)
Operating revenues for the quarter dropped 1.8 percent, falling to $16.8 billion from $17.1 billion a year ago. Verizon recorded a net loss of $2.1 billion, or 78 cents a share, compared to a loss of $1 billion, or 38 cents per share in the year-ago quarter.
But those numbers included $4.2 billion in non-recurring charges, $2.4 billion of which were related to the company’s Genuity investment. Last week, Verizon announced that it would not reintegrate Genuity into the company (see Genuity Gasps for Breath). After those charges, Verizon announced earnings for the quarter of $2.09 billion, or 77 cents per share. That met the consensus of analysts polled by First Call.
In early trading, Verizon’s stock price had gained more than a buck and a half, rising more than 5 percent to nearly $32 a share. Fellow Baby Bells, SBC Communications Inc. and BellSouth Corp. (NYSE: BLS) also saw their share prices surge more than 5 percent in early trading following the news.
“You can’t say that it was a great quarter, because it wasn’t," says J.J.B. Hilliard, W.L. Lyons Inc. analyst David Burks. “But after BellSouth and SBC… our expectations were just so low that this was kind of a pleasant surprise.”
Equipment vendors are probably not cheering today, however, after Verizon announced that it is cutting its capital spending budget to $13 billion from an earlier range between $14 billion and $15 billion. While that might be less of a cut than observers had been anticipating, it still brings Verizon’s capital expenditures target to 24 percent below last year’s levels. Following last weeks revelation that both BellSouth and SBC are slashing their budgets by between $500 million and $1 billion, that can’t be a good thing (see No Relief From BellSouth and SBC Reports Q2).
Sales will also probably be lower than expected. Verizon said that it now expects sales to be flat or down one percent, rather than flat to up one percent. In addition, the company’s target for earnings per share was chopped to as low as $3.05 from previous expectations of earnings as high as $3.17.
On a conference call this morning addressing the earnings report, Verizon CFO, Doreen A. Toben said that the loss was mainly due to costs related to layoffs and to writedowns in the values of several investments, including Genuity. A loss of $183 million, or 7 cents a share, came from Verizon’s exposure to WorldCom Inc. (Nasdaq: WCOME), she said.
“We continue to monitor the economy and wait for signs of the turnaround,” Toben said.
Verizon said it lowered its net debt by $3.3 billion at the end of the first quarter, to $58.6 billion.
In March, Verizon said it expected to eliminate an equivalent of 10,000 jobs this year. On today’s call, Toben said that the bulk of the layoffs until now had been in telecom, but she warned that other areas might also see cuts going forward: “We continue to explore other business units for further efficiencies."
— Eugénie Larson, Reporter, Light Reading