Earnings Preview: Verizon to report 4th-quarter results after trimming expectations

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Earnings Preview: Verizon to report 4Q results

NEW YORK — Verizon Communications Inc. is scheduled to report fourth-quarter results Tuesday morning. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Verizon, the country’s second-largest telecommunications company and largest wireless carrier, has been duking it out with AT&T Inc. with unusually aggressive TV ads. Verizon’s ads attacked AT&T’s data coverage, while AT&T trotted out actor Luke Wilson for point-by-point rebuttals.

The on-air rivalry reflects the state of the wireless market where, increasingly, AT&T is the only competitor Verizon really has to worry about, and vice versa. In the growing and lucrative business of selling service for smart phones, AT&T and Verizon are the top dogs, outstripping T-Mobile USA and Sprint Nextel Corp.

That positions them well as prices for voice service are coming down, while revenue from data is increasing. Increasingly, people use their phones for texting and e-mailing rather than phone calls.

In January, Verizon Wireless cut the price of unlimited voice service. At the same time, it started to require data plans for more of its customers. AT&T Inc. quickly followed with similar moves, but both companies are still substantially more expensive than their competitors.

Playing in the smart phone market can be expensive, though: In early January, Verizon said it expects fourth-quarter earnings below Wall Street estimates. The subsidies it pays on new phones lowered its profit margin because it had an unusually high number of new and upgrading customers.

Also, while Verizon Communications benefits from the growth of the wireless industry, it only owns 55 percent of Verizon Wireless, meaning it doesn’t get to keep all of the profits. Vodafone Group PLC of Britain owns the rest.

Meanwhile, Verizon’s traditional phone business continues to erode. It’s replacing its copper lines with optical fiber in core areas, which has stemmed revenue declines, but at a high cost.

BY THE NUMBERS: Verizon has said it expects fourth-quarter earnings of 53 cents to 55 cents per share excluding special items. Analysts surveyed by Thomson Reuters are expecting 54 cents per share on $27.3 billion in revenue.

A year ago, it earned 61 cents per share, excluding items, on $24.6 billion in revenue. The acquisition of Alltel accounts for much of the projected sales increase.

Verizon’s dividend yield is 6.2 percent, which supports the stock.

ANALYST TAKE: Christopher King at Stifel Nicolaus expects Verizon to forecast “solid” results for 2010 on Tuesday. Lower interest, pension and benefit expenses should help earnings, he believes. However, other analysts have been cutting their 2010 estimates, from an average of $2.45 per share a month ago to $2.42 now.

WHAT’S AHEAD: Analyst Craig Moffett of Sanford Bernstein said the recent price cuts are unlikely to cause much of a near-term hit to Verizon’s earnings, since only about a million of its around 90 million customers are on “unlimited voice” plans so far. The company says the move should increase earnings because more people will be on data plans.

Verizon Wireless is aggressively building a next-generation wireless broadband network, and plans to launch service in up to 30 major cities this year.

Speculation is rife about Verizon Wireless being able to sell the iPhone this year, since Apple Inc.’s exclusive deal with AT&T could be ending. There are also reports that Verizon could provide service for an Apple tablet computer. Meanwhile, Verizon has teamed up with Google Inc. to position phones running the Web company’s Android software as alternatives to the iPhone.

On the wireline side, Verizon’s deal to sell its local-phone operations in 13 states to Frontier Communications Corp. is in the final stages of regulatory approval. Verizon intends to focus on more densely populated areas, where it makes economic sense to replace copper lines with optical fiber.

STOCK PERFORMANCE: Verizon’s stock rose 9.8 percent during the quarter, compared to a 5.1 percent rise in the S&P 500.