Verizon posts Q2 net loss of $2.1 billion

Verizon Communications today reported a net loss of $2.12 billion--or 78 cents per share--more than double the $1 billion net loss posted in the second quarter one year ago. However, $4.2 billion in non-recurring, after-tax charges taken for the quarter resulted in adjusted earnings of $2.1 billion, or 77 cents per share.

Of the non-recurring charges, $2.4 billion related to costs associated with Verizon’s decision not to reintegrate Genuity, while $631 million stemmed from the carrier’s investments in Telus and Cable & Wireless. In addition, a $114 million charge was taken related to the NorthPoint settlement, and $251 million for exposure stemming from the WorldCom bankruptcy and other special items.

The adjusted earnings were in line with the expectations of analysts polled by Thompson Financial/First Call, but flat compared with the same quarter in 2001. Operating revenues were also flat overall, but domestic telecom revenues declined by 4.4% to $10.47 billion, year over year. The company blamed the economy--which significantly impacted enterprise revenues--and technology substitution for the decline.

Total switched access lines in service decreased 3.3% compared with second-quarter 2001, to 60.37 million, while business lines decreased by 1.17 million.

“Our enterprise revenues have been most impacted by the economy. But we remain hopeful we will see a turnaround in this trend once the economy recovers and the business market picks up,” said Doreen Toben, executive vice president and CFO.

Unfortunately, Toben added that Verizon sees “little sign of a significant turnaround until 2003.” Consequently, the carrier expects revenues to remain flat year over year.

“When we look out over the balance of the year, we feel the economy is still soft, but fundamentally healthy,” Toben said. “We feel a rebound will occur, but not in 2002. Business formation expansion is still weak. We’ll continue to monitor the economy and wait like everyone else for the turnaround.”

In the meantime, Verizon will cut its guidance for the remainder of 2002. The carrier now predicts full-year revenue growth ranging from flat to a 1% decline, from the previous range of flat to a 1% increase. Earnings per share, before non-recurring charges, is expected to range from $3.05 to $3.09, down from the previous $3.12 to $3.17. Capital expenditures (capex) will also be reduced, to a range of $13 billion to $13.5 billion, from the previous $14 billion to $15 billion. Much of the capex reductions will come from cutbacks on the provisioning of digital subscriber line facilities, as the carrier continues to push for regulatory relief.

The carrier’s Verizon Wireless subsidiary offset the decline in domestic telecom revenues by generating revenues of $4.74 billion, an 8.1% increase compared to the year previous. The unit also posted an operating cash flow margin of nearly 39% and overall net additions of 723,000, which brought total subscribers to 30.3 million, an 8.5% increase year over year.

Toben called the performance “outstanding” and attributed much of the success to the “value proposition” of its America’s Choice plans.

“Our flagship product, America’s Choice, accounted for about two-thirds of our gross adds during the quarter and we continue to make competitive gains as 58% of those subscribers are new to Verizon Wireless,” Toben said.

Retail churn decreased during the quarter to 2%, a 20 basis point improvement year over year. “Our branding retention efforts and network quality focus continue to pay benefits in churn reduction, which is a key cost driver for the business,” Toben said.

Another bright spot was the performance of the long-distance unit, which reported 800,000 net customer adds in the quarter, a 51% increase year over year. Total subscribers nationwide now stand at 9.0 million. Verizon also landed FCC approval during the quarter to provide long-distance service in Maine and New Jersey.

Toben said Verizon’s long-distance service offering is “already profitable” in New York State, and the company is pushing “close to profitability” in Massachusetts. She predicted the unit as a whole would become profitable next year.

“We’re very comfortable with our LD story,” she said.