Saturday, January 22, 2011

Verizon Communications Inc. (NYSE: VZ): Q4 Earnings Preview 2010

Verizon Communications Inc. (NYSE: VZ), the second-largest U.S. phone company, is scheduled to release fourth-quarter earnings before the market open on Tuesday, January 25, 2011. Analysts, on average, expect the company to report earnings of 55 cents per share on revenue of $26.47 billion. In the year-ago period, the company reported earnings of 54 cents per share on revenue of $27.09 billion.

Verizon Communications Inc. provides communication services in the United States and internationally. Verizon operates in two segments: Domestic Wireless and Wireline. Its Domestic Wireless’s products and services include wireless voice and data services and equipment sales across the United States.

In the preceding third quarter, the New York-based company's net income was $881 million, or 31 cents a share, from $1.18 billion, or 41 cents a share, in the year-ago quarter. On an adjusted basis, the company earned 56 cents a share in the latest quarter. Operating revenues dropped to $26.48 billion from $27.26 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 54 cents per share on revenue of $26.34 billion. 

At its last earnings call in October, Verizon said that it anticipates that adjusted EPS in second-half 2010 will be at the high end of the range of its guidance. Based on adjusted EPS of $1.01 in the first half of the year, Verizon estimates second-half 2010 adjusted EPS will be approximately 5 percent to 10 percent greater than $1.01. 

Recently, the telecommunication giant said that it will incur a pre-tax charge of $600 million in fiscal year 2010 as the company has adopted a new policy that changes its method of accounting for pensions and other post-employment benefits.

Growing demand for smartphones has fueled recent investor confidence in companies who run the networks. Verizon is now officially getting the iPhone, following months of rumors.  While many believe this to be icing on the cake for the carrier’s ongoing success in smartphones, it could actually prove to be a double-edged sword. Verizon will offer an unlimited data plan for the iPhone, an option no longer available through AT&T. While this plan will command a premium from subscribers, it could trigger heavy data usage and pose problems for Verizon’s network (although Verizon has dismissed these concerns). iPhone will also be likely dilutive to Verizon’s earnings this year, given the subsidies the carrier will have to shell out to Apple Inc. (NASDAQ: AAPL)  for the device. The company’s guidance for first-quarter earnings may also be lower given the subsidies it will have to pay out for the iPhone.

Among other developments, Verizon Wireless,a joint venture of Verizon Communications Inc., said recently that its 4G LTE Mobile Broadband network will cover 178 markets by the end of this year. Verizon Wireless noted that its 4G LTE network is now available in 38 major metropolitan areas, covering more than one-third of all Americans.

In terms of stock performance, Verizon shares have gained nearly 2 percent over the past year.

Full Disclosure: None.
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