U.S. News

Verizon Fourth-Quarter Profit Falls, But Earnings Top Forecasts


Verizon Communications said its fourth-quarter profit fell due to taxes on the sale of assets and costs related to a spinoff, but the results surpassed Wall Street estimates as the telephone company's cellular business added 2.3 million customers.

For the final three months of 2006, Verizon earned $1.03 billion, or 35 cents a share, down from $1.66 billion, or 59 cents a share, in the fourth quarter 2005.

Fourth-quarter revenue totaled $22.60 billion, a 26.1% increase compared with $17.93 billion in the same period in 2005, though a big chunk of that gain came from the acquisition of the MCI long-distance business in early 2006.

The latest quarterly profit reflected a charge of $541 million, or 19 cents a share, for taxes owed due to the sale of Verizon operations in the Dominican Republic. It also included 8 cents worth of costs related to the spinoff of the company's phone book and online directories business, as well as severance, pension, merger integration and headquarters relocation expenses.

Excluding those charges, Verizon earned 62 cents a share in the just-ended quarter, edging past the average forecast of 61 cents among industry analysts surveyed by Thomson Financial.

Verizon Wireless blew past numerous forecasts once again, though for the first time in many quarters, the company's rapid customer growth was not enough to narrow the gap behind AT&T's cell phone business, the biggest U.S. carrier by subscribers. Verizon's net gain of 2.3 million customers, at least 100,000 more than many analysts expected, left it with 59.1 million at the end of 2006. AT&T, formerly named Cingular Wireless, reported last week a net gain of 2.4 million customers during the holiday quarter, ending the year with nearly 61 million.

But Verizon Wireless, owned jointly with Vodafone Group, continued to outperform its rivals on other fronts. Revenue grew 16.3% to a market-leading $10.10 billion compared with $8.69 billion a year earlier. And the "churn" rate, measuring the number of subscribers switching to rivals, came in lower than many forecasts, averaging 1.14% of the customer base per month.

Verizon's local and long-distance phone business continued to shrink, but the revenue decline was reduced by growth in customers for DSL Internet access, the new FiOS broadband and TV network, and the former MCI's corporate services.

Fourth-quarter revenue from all wireline operations totaled $12.73 billion, down 3.5% from a year-ago tally adjusted to include the not-yet acquired MCI business. By contrast, third-quarter adjusted revenues had declined 4.7% year-over-year.

The total number of phone lines in service across Verizon's local network declined by nearly 900,000 to roughly 45.1 million. Verizon stressed that the consumer operation's loss of 366,000 residential phone lines was more than offset by a gain of 409,000 broadband lines for a year-end total of roughly 7 million.

That included 165,000 new customers for FiOS Internet -- the high-capacity fiber-optic lines that Verizon is installing across half of its local phone network in place of its copper phone wires at a cost of $23 billion. At year-end, FiOS Internet was available to 4.8 million homes with 687,000 customers, a penetration rate of 14%.

Subscribers to FiOS TV, a pivotal weapon in Verizon's battle against cable companies that now sell phone service, grew by 89,000 for a year-end total of 217,000. That represented a penetration rate of 9% among the 2.4 million homes that had access to FiOS TV.

The Verizon Business unit generated $600 million in cost savings from the acquisition of MCI during 2006, about $50 million more than projected. The company said it now expects $900 million in merger-related savings for 2007, up from a prior forecast of $825 million.

Full-year earnings in 2006 came to $6.20 billion, or $2.12 per share, on revenue of $88.14 billion. In 2005, profits totaled $7.40 billion, or $2.67 a share, on revenue of $69.52 billion.