Verizon lowers guidance

Verizon Communications lowered its financial guidance for 2001 and took a $2.9 billion write-down in telecom investments that pushed it into the red during the second quarter.

Verizon management now expects revenue growth of 5% to 6%--a downward adjustment of 1%--and earnings per share of between $3.07 and $3.12. The previous target was $3.13 to $3.17 per share.

Verizon maintained its capital expenditure estimate of $17.5 billion.

“Clearly, the weakened economy has dampened demand across the board,” said Fred Salerno, vice chairman and chief financial officer.

Verizon posted a net loss of $1.0 billion, or 38¢ per share, compared with income of $4.9 billion, or $1.79 per share, in the year-ago quarter. One-time items causing the loss included a $2.9 billion write-down in the value of Verizon’s investments in Cable & Wireless, NTL and Metromedia Fiber Network; and $162 million in merger transition costs.

Excluding the $3.1 billion in one-time charges, Verizon recorded operating earnings of $2.1 billion, or 77¢ per share, up 6.9% from 2000’s $2.0 billion, or 72¢ per share, in profits. The year-ago quarter included a $1.9 billion gain in the value of Verizon’s investment in Cable & Wireless.

The operating results were in line with analysts’ average estimate of 77¢ per share, according to First Call/Thomson Financial.

Verizon said that merger-related expense savings and cost-control measures enabled the company to increase cash expenses by only 1.7% during the quarter. In the domestic telecom unit, cash expenses decreased 3.5% from one year ago.

“We are taking expense savings that will stick to the ribs,” Salerno said. “We are taking costs out of the business that will not be there when the recovery occurs.”

Verizon’s revenues rose about 5% in the second quarter to $16.9 billion, excluding the impact of overlapping wireless properties.

Verizon added 120,000 DSL subscribers in the second quarter compared with 180,000 in the first quarter. The carrier attributed the slowdown to new pricing and regulatory requirements, as well as a transition to a separate data affiliate in California. Verizon did not change its year-end goal of 1.2 million to 1.3 million DSL subscribers.

Verizon’s success in winning long-distance customers continued during the quarter, as the company added 804,000 customers, including 253,000 in its newest market, Massachusetts. Verizon now has 6 million long-distance customers nationwide, and increased its growth target for the year to between 6.7 million to 6.9 million customers, compared with the previous range of 6.4 million to 6.6 million.

As previously announced, Verizon Wireless netted 808,000 new customers in the quarter, a 12.7% increase from last year. Service revenues per subscriber increased 3.7% to $49, and Mobile Web and Mobile IP data services subscribers grew to 1.1 million.