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Verizon (VZ)
Verizon Has No Problem Making itself Heard
Yes, Verizon, we can hear you now. Verizon Communications is doing double duty in the headlines today, supplying news on both the earnings front as well as adding to Monday's M&A activity. The second-largest phone company in the U.S. not only reported a boost in its second quarter profit, but has also announced a deal to further extend its hold on the wireless communications industry. Expansion has been the name of the game for Verizon and it seems to be paying off. What is the company doing to beat out rivals and secure the top spot among the phone giants?
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In its earnings report today, Verizon declared an increase in second quarter profits, fueled by growth in both the wireless division as well as in the number of FiOS subscribers. An additional 1.3 million net mobile users signed up for service in the three months between March and June leading to a 4.5 percent boost in net profit. Profits reached $1.68 billion, or 58 cents per share, from $1.61 billion, or 55 cents per share, during the same period last year. Operating revenue climbed 6.3 percent to $23.37 billion with help from wireless sales which increased 17.1 percent. These results were right in line with analyst expectations which estimated 58 cents per share on revenue of $22.98 billion.
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Verizon has been overcoming the long-term declines in the more traditional phone business with expanded coverage and offerings catered to its wireless customers as well as venturing further into broadband territory. The company's new, high-speed Internet and video service built on fiber-optic technology, called FiOS, is expanding quickly into residential areas across the country. The FiOS package includes video, phone and Internet services to regions that support the fiber optic network, giving residents an alternative to other all-in-one packages being offered by cable operators. The service is catching on as Verizon added 288,000 broadband customers and 167,000 fiber-TV subscribers in the most recent quarter. Though the costs of setting up the service caused earnings to take a hit of 10 cents per share, the expense is viewed as necessary to counteract the declines in traditional home phone customers.
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Now back to the wireless side of the business. In its other news of the day, Verizon announced that it has agreed to purchase Rural Cellular (RCCC: Charts, News, Offers) for $757 million, or $45 per share, in cash. The arrangement will increase Verizon's subscriber base by about 716,000 people and expand its licensed service area population by 4.7 million, which will save on roaming costs. President and CEO of Verizon Wireless, Lowell McAdam, said, "Verizon Wireless continually looks for opportunities to enhance our customers' wireless experience. The addition of Rural Cellular's markets will enable us to expand our services into areas where previously we had little or no presence, and will give Rural Cellular's Unicel customers access to the nation's most reliable network and a broader range of voice and data services." The purchase price is a 41 percent premium to Friday's close of $31.88 and Rural Cellular's shares are up nearly 11 points in morning trading.
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Verizon's ability to achieve year-over-year growth again this quarter marks the third straight time such success has been attained. Rivals such as AT&T (T: Charts, News, Offers) and Sprint Nextel Corp. (S: Charts, News, Offers) have not seen the same results, prompting the thought that it is only a matter if time before Verizon reaches that number one position.
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