Verizon posts Q1 2002 net loss

Verizon Communications today reported a consolidated net loss for the first quarter 2002 of $501 million, or 18 cents per share, a 132% decline over the $1.57 billion net gain reported in the same quarter a year ago. Operating revenues for the quarter were $16.4 billion, essentially flat year over year. These results do not include $2.5 billion in charges for goodwill, investments and other items. Verizon previously announced on April 9 that it expected to report these charges today.

Without these charges, adjusted diluted earnings per share (EPS) for the quarter were 72 cents, in line with the expectation of analysts polled by Thompson Financial/First Call.

While the earnings were sluggish, Verizon said it added more than 100,000 new long-distance customers during the quarter, bringing total long-distance customers to 8.2 million, a 3-million customer increase year over year (about 60%). In addition, Verizon gained approval on April 17 to provide in-region long-distance service in Vermont. It plans to begin offering service in the state on April 30. Vermont is the sixth state for which Verizon has gained Section 271 approval. Verizon now offers long-distance service in 42 states and is the fourth-largest long-distance provider in the U.S.

Verizon also added 150,000 new DSL customers during the quarter, bringing its total to 1.35 million, an 88% increase year over year. The quarter also included a 10.4% increase in data transport revenues, a 6.4% reduction in domestic telecom cash expenses and a $3.5 billion improvement in free cash flow.

Verizon Wireless saw its retail customer base grow to 27.8 million during the quarter, an 11% increase year over year, while total customers grew at a 9% clip, to 29.6 million. Total retail churn for the quarter was 2.3%, down from 2.8% the year previous. Post-paid retail churn was 2.0%, down 2.2% in first-quarter 2001. Other wins included the continued buildout of the carrier's 1XRTT 3G network. Verizon said about one-third of its network has been converted to this platform.

Nevertheless, Verizon also announced it would lower its guidance for the remainder of 2002, citing the "length and depth of the economic slowdown," which it said would continue to have an "overlay across all of its businesses." Further, Verizon said it does not anticipate any "meaningful effects" from an economic turnaround until 2003.

"As the economy continues to be challenging, our focus will remain on the business fundamentals within our control," said Verizon CEO Ivan Seidenberg in a statement. "We have institutionalized cost reduction and productivity gains, and we continue to strengthen our cash flows by divesting non-strategic assets, realigning our debt portfolio and effectively managing our capital expense budget."

Verizon said it reduced overall debt by $1.4 billion during the quarter, to $62.9 billion, and reduced its commercial paper by $2.2 billion dollars, to $10.6 billion. Free cash flow improved during first-quarter 2002 by $3.5 billion, driven primarily by lower capital spending in first-quarter 2002, according to the carrier.

Adjusted revenue growth for the year was revised to a range of 0% to 1%, from the previous guidance of 3% to 5%. EPS is now expected to range from $3.12 to $3.17, a reduction from the previous range of $3.20 to $3.30. Capital expenditures also were reduced downward to a range of $14 billion to $15 billion, down from the previous range of $15 billion to $16 billion. Unchanged were targets for year-end total customers, which remain at 10 million-plus long distance customers and a range of 1.8 million to 2 million DSL customers.