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Verizon Cuts Growth Outlook

Earnings: Weak second-quarter profit also led to 11% drop in share price. Northpoint merger announced.

August 09, 2000|JESSICA HALL | REUTERS

Verizon Communications on Tuesday posted higher, but disappointing, second-quarter profit and cut its growth outlook for 2000, sending its stock down 11%.

Verizon, which issued its warning amid a potentially crippling three-day strike by 87,000 of its union workers, also said it would merge its high-speed Internet access business with NorthPoint Communications Group Inc. and acquire a 55% stake in the company for $800 billion.

Shares of Verizon slid to an intra-day- and 52-week-low of $41.25 before recovering somewhat to close down $5.38 at $42.50 in heavy trading on the New York Stock Exchange. The stock--down 30% so far this year--had fallen sharply in recent weeks on concerns Verizon would cut its growth forecasts.

Verizon said it expects 2000 earnings to be $2.90 to $2.94 a share, with revenue growth of about 8% to 10%. Analysts had expected earnings of $3.15 this year, according to First Call/Thomson Financial.

The New York-based company cited issues such as the later-than-expected closing of the acquisition of GTE Corp. by Bell Atlantic Corp., in which Verizon was formed; the recent spinoff of GTE's Genuity Inc. Internet business; and regulatory concessions for the lower forecast.

In the second quarter, operating profit rose 5% to $1.97 billion, or 72 cents a share, from $1.87 billion, well short of Wall Street expectations of 83 cents, Verizon said. Revenue rose 15.7% to $16.79 billion, with data revenue increasing almost 32% to nearly $1.5 billion.

Total U.S. telecom group revenue rose 4.8% to $11.2 billion in the latest quarter. Data sales of high-bandwidth and special access services, as well as network integration services, accounted for almost 70% of that group's growth.

Verizon Wireless, the company's wireless telephone partnership with Britain's Vodafone Group, added about 800,000 new customers, bringing its total customer base to 25.6 million. Verizon Wireless' revenue rose 19% to $4 billion.

Verizon also said it would acquire a controlling stake in NorthPoint for $800 million and would merge the firms' DSL businesses.

Digital subscriber line technology provides high-speed Internet access over ordinary, copper telephone wires rather than over data lines. DSL services compete against cable-based high-speed Internet access services.

The "new" NorthPoint would accelerate the expansion of the companies' DSL services nationwide. The deal also would give Verizon a new stock currency to use for acquisitions or compensating employees.

Although the deal could help the company over the longer term, some analysts expressed concern about its cost and the potential distraction the new deal could cause.

Verizon's progress slowed in contract negotiations with its unions because of disputes over job security, forced overtime and union access to wireless-telephone unit jobs.

"The mood is generally less optimistic than it was on Sunday, but we continue to slug through the issues one at a time," Verizon spokesman Eric Rabe said.

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Poor Reception

Shares of Verizon Communications (ticker symbol: VZ), formed when Bell Atlantic bought GTE in early July, have plunged since the deal was completed.

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Monthly closes and latest on the New York Stock Exchange for Verizon Communications (trading before July was for parent Bell Atlantic)

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Tuesday: $42.50, down $5.38

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Source: Bloomberg News

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