UPDATE 4-Verizon posts loss but margins, mobile impress

Fri Jul 23, 2010 1:38pm EDT

* Q2 adjusted shr $0.58 vs estimate $0.56

* Q2 rev $26.77 bln vs year ago $26.86 bln

* Q2 postpaid subs 665,000 vs analyst view 570,000

* Verizon shares rise 3 pct

(Adds executive comment, FiOS details, share price update)

by Sinead Carew

NEW YORK, July 23 (Reuters) - Verizon Communications (VZ.N) posted a quarterly loss due to a $2.3 billion charge for job cuts but wireless customer growth and landline profit margins impressed investors, sending its shares up 3 percent.

While cost cuts helped profits in the declining landline business, the popularity of phones based on Google Inc's (GOOG.O) Android software helped Verizon add more valuable monthly bill-paying wireless customers than expected.

Verizon Wireless, a venture between Verizon and Vodafone Group Plc (VOD.L), added 665,000 postpaid subscribers compared with the average expectation for 570,000 from eight analysts contacted by Reuters.

Stifel Nicolaus analyst Christopher King was impressed Verizon was able to add more postpaid customers in the quarter than the 496,000 additions at rival AT&T Inc (T.N), the exclusive U.S. operator for Apple Inc's (AAPL.O) iPhone 4. [ID:nN22162854].

Both Verizon and AT&T have focused on cost cutting to improve landline results as they have seen traditional home phones decline steadily in the face of competition from cable and Internet rivals and cellphones.

Verizon's landline profit margins of 22.7 percent compared to King's expectation for 21.7 percent and an estimate for 22 percent from Piper Jaffray analyst Chris Larsen.

Verizon's Chief Financial Officer John Killian forecast earnings-per-share growth in a range of 5 percent to 10 percent for the second half of 2010 compared with the first half of the year.

He said on a conference call that cost controls will keep bolstering margins for the rest of 2010 and beyond. He also announced plans to cut more jobs in Verizon's traditional phone business on top of the 11,000 employee buyouts already planned for this year.

"In the wireline business, the biggest contributor was definitely the cost controls we put in," Killian said. "There's plenty of opportunities to take (more) cost out."

Killian said Verizon is seeing stabilization in business trends among big corporate customers but is cautiously optimistic regarding a "more meaningful economic recovery."

Verizon posted a second-quarter loss of $198 million, or 7 cents per share, from a profit of $1.48 billion, or 52 cents per share, in the same quarter the year before.

But excluding items such as the charge, its earnings per share would have been 58 cents, ahead of analyst expectations for 56 cents, according to Thomson Reuters I/B/E/S.

Verizon's revenue fell 0.3 percent to $26.77 billion from $26.86 billion a year earlier, driven by a $268 million reduction made by Verizon for accounting purposes to properly defer previously recognized wireless data revenue that would be earned and recognized in future periods.

In wireless Verizon has been heavily promoting Droid branded phones from Motorola Inc MOT.N and HTC Corp (2498.TW) to help it compete with AT&T and iPhone.

Killian said the company was having trouble keeping Droid phones in stock but that it was not having a "big supply problem."

Including prepaid customers who pay for calls in advance but do not commit to a contract, Verizon Wireless had 1.4 million net wireless customer additions.

On top of this the company said it connected 264,000 devices such as e-readers to its network, bringing the total number of new connections to 1.64 million. Including these devices Verizon said it had 99.7 million wireless connections at the end of the quarter.

In comparison its biggest rival AT&T reported 1.6 million net customer additions for the quarter including devices such as e-book readers, giving it 90.1 million connections at the quarter's end.

Verizon said it added 196,000 net customers to its FiOS Broadband service and 174,000 to its FiOS TV service to end the quarter with 3.8 million FiOS Internet customers and 3.2 million TV customers.

Verizon's shares were up 85 cents to $27.85 in afternoon trade on New York Stock Exchange after the news. (Reporting by Sinead Carew; editing by Derek Caney, Phil Berlowitz)

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