Verizon’s 3Q Profit Takes a Hit (VZ)

Verizon (VZ)
Verizon’s 3Q Profit Takes a Hit

The downturn in the economy has exposed a lot of underlying issues at some of the biggest companies around the world. Some have been forced into bankruptcy as a result of tepid growth and declining sales while others have found creative ways to appear better off than they really are. Since the beginning of 2009, Verizon has tried many different strategies to keep earnings in positive territory, but those tricks are no longer working as well as they once did. The second quarter was flooded with declines and the latest report from the telecommunications giant revealed similar issues. The company’s third-quarter revenue rose, but its profit declined as cost increased. Will the same problems from previous quarters plague the company’s 4Q results? Will Verizon go back to its old bag of tricks to finish off the year on a positive note?

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Stock Analysis

As companies grappled with declining sales and profit, cost-cutting was the most obvious option. No one knows this better than Verizon. The company has been slashing costs and jobs well before this recession even started. One of the company’s main issues is trying to balance aging products such as its landline services with new and popular sections of its business. This was one of the reasons that the third quarter played out the way that it did. Verizon watched the number of subscribers for its fiber and mobile services increase nicely during the quarter. The company added 191,000 customers for its fiber-TV service and 198,000 for its fiber-Internet service. The nation’s No. 1 wireless service also added a net 1.2 million mobile subscribers. This would have been a great boost to its quarterly profit, but more costs related to its purchase of Alltel Corp. earlier this year continued to weigh on profits. The popularity of wireless phone services in general is causing customers to disconnect their landlines and this part of Verizon’s business is continuing to experience declines.

Verizon’s fourth quarter may end up facing the same problems. These are ongoing issues that will not change quickly just because the economy has finally started to make a turnaround. Unfortunately, cost-cutting can only go but so far. The company could continue terminating employees, but the lack of manpower will eventually spill over into its other businesses. This could end up hurting profits much worse than declining sales. The company doesn’t have many options to catapult earnings to the level that they need to be at, especially since its primary consumers are the ones that haven’t felt a dramatic shift in the direction of the economy. Verizon has to figure out a way to capitalize on all the cash they are receiving and find a better way to limit the debt that seems to balloon out of proportion each quarter. It’s definitely time for this dog to learn some new tricks. Despite matching Wall Street financial targets, Verizon shares were down 14 cents to $28.71 in premarket trading.

More Stuff on Verizon

Why Verizon’s Next Few Quarters Look Promising — Verizon may be able to make a turnaround after all.

Verizon Doing Just Fine Without iPhone — Verizon’s wireless business is doing pretty good without offering the iPhone.

Other Stocks in the News

Caterpillar is hiring, but also firing — Caterpillar Inc. (CAT: Charts, News, Offers) said it plans to bring back 550 laid-off employees due to improving demand.

Corning 3Q profit slips, but TV glass demand rose — Corning Inc. (GLW: Charts, News, Offers) posted third-quarter profit that beat analysts’ estimates and forecasted an increase in glass volume.

McGraw-Hill profit slides 14% — Plagued by weakness in advertising and the elementary and high school education markets, McGraw-Hill’s (MHP: Charts, News, Offers) third-quarter earnings declined.

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