Stronger-than-expected wireless sales helped Verizon Communications Inc post a higher quarterly profit despite a fall in landline customers and worries of a slower U.S. economy, lifting its shares 12 percent.
By Ritsuko Ando
Investors were relieved the No. 2 U.S. phone company managed to grow despite stronger-than-expected sales of Apple Inc's iPhone, which uses larger rival AT&T Inc's service.
"I think that after AT&T posted its own blowout numbers expectations had come down for Verizon, and there was skepticism whether the market was big enough for both of them to beat expectations," said Bernstein Research analyst Craig Moffett.
Verizon Wireless, owned by Verizon and Britain's Vodafone Group Plc, added a net 1.5 million subscribers in the quarter, excluding growth from acquisitions. The market had expected 1.4 million subscriber additions, according to a survey of six analysts by Reuters.
Verizon shares rose 11.76 percent to $28.03 in afternoon trade. AT&T shares rose 2.23 percent to $25.23.
Verizon's third-quarter profit rose to $1.67 billion, or 59 cents a share, from $1.27 billion, or 44 cents a share in the same quarter a year earlier.
Earnings per share before items rose to 66 cents from 63 cents, exceeding the average analyst estimate of 65 cents, according to Reuters Estimates. Revenue rose 4 percent to $24.75 billion, compared with Wall Street's view of $24.52 billion.
Chief Executive Ivan Seidenberg said the results showed the company's stability and strength in the face of economic turmoil, although he warned it would not be totally immune.
"The general consensus is that for the Christmas season, consumer spending is likely to be lighter and business spending will be somewhat curtailed until next year," he told analysts on a conference call.
Verizon also reported growth in Verizon Business sales, despite worries that corporate clients would trim their spending on technology and telecommunications.
WIRELINE LOSSES
Landline sales, as in recent quarters, was the weak spot. Residential switched access lines fell 12 percent in the third quarter, with the decline accelerating from the second quarter.
Declining landlines was a key factor behind rural telephone company CenturyTel Inc's planned acquisition of larger peer Embarq Corp for $5.8 billion, a deal announced on Monday.
Verizon was able to partly offset the decline in traditional phone sales with growth in FiOS, its high-speed Internet and video service that aims to compete with cable service providers. Verizon said it added 233,000 new FiOS TV customers and 225,000 new FiOS Internet customers.
But analysts warn that FiOS may not be enough, and that the expansion, involving massive investment in fiber-optic cables and hours of work per household, also means higher spending.
Investors have also been concerned about Verizon's plans to buy rural wireless provider Alltel Corp, a deal most see as positive but likely to be more expensive than planned due to higher debt financing costs.
The company said financing costs would be higher than expected, but that the deal was still beneficial in the long run. The acquisition would make Verizon the biggest U.S. carrier, surpassing AT&T.
"We do have admittedly an issue in which the early returns will be lower than we thought. But in no way will the long-term benefit of this deal be negated by some of these short-term issues," Seidenberg said, adding that the company hopes to close the deal as soon as possible.
Verizon's shares have fallen around 40 percent from a year earlier amid worries of a slower economy. Analysts have said that was partly due to a general shift in funds out of U.S. equities, and Chief Operating Officer Denny Strigl emphasized the company's resilience.
"The important thing is, we have in our business a recurring revenue stream, revenue that comes in every month," he told Reuters. "This is not a company where customers stop buying, like a new car."
(Editing by Derek Caney and Gerald E. McCormick)
NEW YORK (Reuters)