* Q2 shr 64 cents vs Wall Street view 64 cents
* Q2 rev $28.552 bln vs Wall Street view $28.558 bln
* Adds 888,000 net subscribers vs analyst view 666,000
* Cuts customer growth target for FiOS
* Shares fall 2.9 percent
By Sinead Carew
July 19 Weakness in Verizon Communications Inc's
enterprise business offset a better-than-expected
wireless quarter, sending the telephone company's shares down
After pushing Verizon's shares up 14 percent so far this
year, investors focused in on the wireline miss on Thursday even
as Verizon handily beat Wall Street estimates for wireless
subscriber growth and profitability.
While earnings per share (EPS) met Wall Street expectations
for the quarter, analyst said that wasn't enough.
"The view by investors is that wireline stole the EPS
benefit of a great wireless quarter," Nomura analyst Michael
Chief Financial Officer Fran Shammo told analysts on a
conference call that Verizon's enterprise business was hurt by
foreign exchange rates and a decision to stop selling some
customer equipment and, to a lesser extent, by macroeconomic
challenges in Europe.
But McCormack said the world economy's impact may have been
"The global economy may be more sluggish than people believe
at this point. It seems (for) anything outside large
multinationals, you're seeing very sluggish buying behavior," he
Verizon's wireline revenue fell 3.4 percent in the quarter
to $9.93 billion compared with Wall Street expectations of
$10.03 billion, according to the company.
While Verizon saw strong revenue growth in its consumer
wireline business, Shammo said its addition of 120,000 net new
FiOS television customers was weaker than it expected as an
unusually high number of people moved from the FiOS region.
Shammo said Verizon was reducing its target estimate for
future FiOS TV growth to 150,000 to 170,000 from its previous
estimate of 180,000 to 200,000 as the company is increasing its
prices to focus more on the profitability of the service.
The executive told Reuters that he expects Verizon's
wireline revenue growth rate from consumer services to rise to 5
percent by the end of the year from 2.5 percent in the second
quarter as the company plans more price increases.
The company raised prices in the second quarter with service
packages that include higher Internet speeds, but Shammo warned
there would be more price increases for TV bundles.
"We started in the second quarter but there's more on the
plate for the third and fourth quarter," Shammo said.
Guggenheim Securities analyst Sing Yin said consumers may
have no choice but to pay higher fees for TV as programmers
increase their rates. He also expects them to embrace pricier
"They're counting on consumers being willing to pay more for
better speed. So far, there is evidence there is demand for
higher speeds at higher prices," Yin said.
WIRELESS BEATS ESTIMATES
In response to rumors about a dividend payment, Shammo said
that the board of the company's Verizon Wireless venture with
Vodafone Group Plc does not plan to discuss a
distribution at its next quarterly board meeting.
Vodafone shares fell 1.7 percent in London trading after the
Verizon Wireless added 888,000 net new subscribers in the
quarter, compared with the average expectation of about 666,000
of seven analysts.
"That's a terrific number," Roe Equity Research analyst
Kevin Roe said, noting that Wall Street does not expect No. 2
mobile provider AT&T Inc to add even half as many
customers in the quarter.
The growth at the No. 1 U.S. mobile provider probably came
at the expense of smaller rivals Sprint Nextel and
T-Mobile USA in particular, as those companies have been
struggling to stem customer losses, Roe said.
The company said that 50 percent of its wireless customers
were using smartphones by the end of the second quarter, up from
47 percent at the end of the first quarter. Since smartphone
customers spend more than customers with basic phones, Verizon
has been pushing to increase its smartphone penetration.
Verizon Wireless launched new shared data service plans June
28 that raised its data fees in exchange for letting customers
connect multiple devices under one plan. The plan is aimed at
getting consumers to more devices to its network.
While the shared data launch was too late in the quarter to
have an effect on the company's results, Shammo said that early
consumer feedback had been "great."
Verizon's wireless service margin based on earnings before
interest, tax, depreciation and amortization was 49 percent,
ahead of average estimates of five analysts for just above 47
Verizon's second-quarter profit rose to $1.83 billion, or 64
cents per share, from $1.61 billion, or 57 cents per share, a
year earlier. The results were in line with analysts' estimates,
according to Thomson Reuters I/B/E/S.
Revenue rose to $28.552 billion from $27.54 billion, while
analysts were expecting $28.558 billion.
Verizon said on Thursday that its 2012 capital spending
would be little changed or lower than its 2011 budget of $16.2
billion. During the company's last earnings call, Shammo had
expected 2012 spending to be about the same as in 2011.
The company said it was on track for growth in full-year
earnings in the double-digit percentage range, implying a rise
of at least 10 percent.
It expected profit margins in its wireline business to
continue to improve in the second half of the year after
increasing in the second quarter from the first quarter.
Verizon hopes to improve earnings by reducing costs in
negotiations for new terms for a labor contract covering 45,000
workers but the company appeared to be nowhere nearer to an
agreement on Thursday almost a year after its workers went on
strike to protest the cuts Verizon wants to make.
On Thursday afternoon, Verizon's unions said they had
requested mediation services for the talks because they had gone
on too long. Verizon rejected the request.
Verizon's shares closed down $1.35, or 2.9 percent, at
$44.54 on New York Stock Exchange, which was still up 11 percent
from the end of 2011.