Stock of the Day
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Verizon (VZ)
Verizon Swings the Axe Again After 21% Decline in 2Q Profit
Verizon Communications Inc. is considered the nation's largest wireless carrier, but that title doesn't mean much when the company's earnings fail to meet Wall Street's expectations. It was just last quarter that the company was being praised for beating 1Q expectations. Verizon's cost cutting strategy was one of the main reasons the company was able to top expectations last quarter. This same game plan was apparently not enough to put Verizon in the same position during the second quarter. The company reported that second quarter earnings dropped 21% . Why is Verizon having such a hard time beating expectations? What does the future look like for the nation's largest wireless carrier?
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| Stock Analysis |
When people think about Verizon, most recall some witty commercial asking that old question “can you hear me now?” The wireless portion of the business is one of the bright spots in a sea of red ink and declining figures in other businesses. The company has been able to capitalize on continued growth in its wireless division as individuals switch from smaller carriers such as Sprint Nextel (S: Charts, News, Offers) and T-mobile. Although the wireless division is strong at Verizon, it is still facing some stiff competition from AT&T (T: Charts, News, Offers). Verizon added 1.1 million customers during the second quarter, which is far behind the 1.4 million customers that AT&T added during the same period. AT&T's exclusive contract to carry the iPhone has been credited the recent surge of subscribers. The wireless division is not the problem at Verizon. The main issues revolve around its wholesale and enterprise business, which was dramatically hurt by the company's recent layoffs. These declines are overshadowing the growth in the company's wireless business and cutting into profits. Verizon has recently won some large contracts , but the company is still worried and will axe another 8,000 jobs from its wireline business.
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Verizon placed a lot of bets on its FiOS business and those gambles are starting to pay off for the company. Even with the success of FiOS and the wireless business, the future still looks bleak for the company. Verizon Wireless Chief Executive Officer Lowell McAdam suggested that the business slump will likely continue at least into the fourth quarter. Verizon may be able to dramatically increase its profits if the company is able to work out a deal with Apple (AAPL: Charts, News, Offers) to carry the highly coveted iPhone. Rumors having been circulating for some time that Verizon is in talks with Apple to carry the iPhone. Verizon has already tried its hand at starting its own app store, but it's clear that it poses no threat to Apple. Verizon has also fast-tracked the implementation of its 4G mobile broadband network. Could the company be possibly getting ready to carry a tablet PC from Apple?
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Continuing to axe employees every other month will eventually begin to hurt the company more than help. Verizon has a number of things in the works that may help propel earnings, but the success of these ventures may be limited if manpower continues to be reduced at record numbers. Shares of Verizon declined 17 cents during morning trading. The stock had declined 7.1 percent this year before today.
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