Originally created 04/28/04

Verizon's first quarter earnings down 50 percent



NEW YORK -- Verizon Communications Inc.'s earnings fell 50 percent in the first quarter, as employee buyouts increased expenses for the country's largest phone company.

Verizon said Tuesday it earned $1.2 billion, or 43 cents a share, for the January-March period, down from $2.4 billion, or 87 cents a share, a year ago.

One-time expenses cost 15 cents a share, most of which went toward early retirement packages for some of the 21,000 employees who left the company's payroll in the fourth quarter of 2003 as part of the company's voluntary buyout program.

The packages cost $447 million in the first quarter and Verizon expects to spend about $250 million more on them before the year ends, chief financial officer Doreen Toben said. The buyout was designed to help accelerate cost-cutting in the company's shrinking residential telephone business.

Excluding one-time items, the company would have earned 58 cents a share, beating by a penny the average estimate by analysts surveyed by Thomson First Call. Excluding a one-time accounting gain a year ago, the company would have earned 70 cents per share.

Revenue increased 3.9 percent to $17.1 billion from $16.5 billion a year ago as Verizon Wireless added 1.4 million customers.

Shares in Verizon fell 46 cents to $37.28 in afternoon trading on the New York Stock Exchange.

"A lot of people assumed they could offset access-line losses with increased revenue per user," said Patrick Comack, an analyst at Guzman & Co. "Verizon's got to find a way to increase revenue per user more than they are."

Domestic telecom revenue, from the company's land-line business, dropped 3.3 percent to $9.6 billion. The company has been counting on increased revenue in long distance, DSL and wireless to offset the losses in local wireline service.

"While domestic telecom revenues were down, we recognize that this is part of the evolution of our business model and we are on track with where we want to be," said Verizon's chairman and chief executive, Ivan Seidenberg.

The number of Verizon Wireless customers was up 66.5 percent from last year's quarter. Revenue in that division grew 21 percent to $6.2 billion.

"Wireless is the huge growth engine at Verizon," said Anthony F. Ferrugia, a telecom analyst at A.G. Edwards & Sons. Inc. "Verizon Wireless in the wireless industry is like Tiger Woods in golf."

Verizon, along with others in the telecommunications industry, is struggling as revenue from traditional services falls.

Calls to directory assistance and use of pay phones were both down, Toben said in a call with analysts.

Families also shut down second phone lines in their homes as they switched from dial-up modems to DSL service, she said, pushing the number of residential lines the company had in service down 4 percent.

Business customers continue to switch lines off as well. The number of business lines dropped 4.6 percent during the quarter.

Verizon has added more than 4 million long-distance customers since last year's first quarter, but it's been hurt by the same falling prices for long-distance calls that have battered competitor AT&T Corp.

The company is also pushing for further cost cuts. Now that it has fewer employees, it may consolidate call centers and sell real estate, Toben said. It also will try to make automate more repairs and installations, she said.