Verizon reports dip in net income

Verizon Communications today attributed a drop in third-quarter net income to a weak economy and restoration efforts in the aftermath of the Sept. 11 terrorist attacks. Those two factors would continue to slow growth in the fourth quarter, the company said

Verizon reported third-quarter net income of $1.9 billion, or 69¢ per share, compared with $3.5 billion, or $1.27 per share, in the year-ago period. Excluding one-time charges, Verizon earned $2.04 billion, or 75¢ per share.

Verizon estimated the earnings impact of the Sept. 11 attacks at 3¢ per share in the current quarter and an additional 3¢ charge in the fourth quarter. Fred Salerno, Verizon’s chief financial officer, said the revenue opportunities missed because of the Sept. 11 recovery effort are still not fully known.

“We don’t have 100% visibility into the effects of 9-11,” he said. “We lost a permanent revenue stream down in southern Manhattan.” Salerno estimated the lost revenue at about $100,000 annually.

Other one-time items included a $144 million charge associated with the shutdown of GTE’s CLEC operations. The company also saw a $245 million gain from an adjustment in the value of convertible bonds in Cable & Wireless and NTL.

Verizon’s consolidated revenues grew 3% to $17.0 billion, hurt by a 1.9% drop in revenues from the company’s core domestic telecom group. Data-services revenues grew $1.8 billion, driven by 18% growth in data-transport sales. But the growth rate was slower than the second quarter’s rate of 25%.

Verizon Wireless saw a 12% increase in revenues to $4.5 billion. The unit added 752,000 wireless customers, down from 808,000 in the second quarter. Total wireless churn decreased to 2.2%, a sequential and year-to-year decrease. Verizon executives highlighted the fact that almost 94% of its subscriber base is made up of contract customers.

On the DSL front, Verizon recorded 135,000 net new customers, about 15,000 more than last quarter. In the current quarter, Verizon surpassed the 1 million total broadband customers. By the end of the year, the company expects to reach 1.2 million to 1.3 million DSL customers.

Verizon also added about 850,000 long-distance customers in the third quarter, 46,000 more than the second quarter. It has 31.7% of the long-distance market share in New York and 17.9% in Massachusetts.

Verizon declined to provide any guidance for 2002. For the fourth quarter, it is targeting revenue growth of 3%, earnings per share of 77¢ to 80¢, including the 3¢ charge from the Sept. 11 restoration efforts, and capital expenditures of $4.5 billion to $4.7 billion.

For all of 2001, Verizon now projects revenue growth of 4% to 5%, compared with previous estimates of 5% to 6%; earnings per share of $3.00 to $3.03 per share, excluding the 6¢ impact from Sept. 11; and capital expenditures of $17.0 to $17.2 billion. The previous capital budget estimate was $17.5 billion.

When asked whether capital expenditures could dip below $17.0 billion, Salerno said, “Every screw is being tightened down.”

Verizon Wireless remains in discussions with NextWave and federal regulators regarding a deal to buy NextWave’s disputed spectrum. The earliest Verizon would have to pay for the licenses would be May 2002, according to Salerno. The pending IPO of Verizon Wireless, expected to occur early in 2002, would cover most of the cost, Salerno said.