Verizon earnings take hit from layoffs

A $3 billion charge for workforce reductions hit Verizon Communications' bottom line in the fourth quarter, despite strong growth in wireless.

On Tuesday, the telecommunications giant said it added more than 2.2 million mobile subscribers to its network. About 1.2 million were retail customers and about 1 million came from reseller partners. Analysts had expected Verizon to sign up just over 1 million new subscribers.

Despite strong wireless sales, Verizon reported an overall net loss for the fourth quarter due to charges associated with employee layoffs. It posted a net loss of $653 million, or 23 cents per share. A year ago, it reported net income of $1.24 billion, or 43 cents a share. The company took charges of about $3 billion in workforce reductions. Without these charges, the company says it would have earned 54 cents per share.

Verizon Chief Financial Officer John Killian said in July that the company had eliminated 8,000 jobs and was planning to cut another 8,000 jobs in the second half of 2009.

Revenue for the fourth quarter of 2009 was up about 10 percent to $27.1 billion, compared with the fourth quarter of 2008. Analysts had expected the company to report revenue around $27.3 billion. Verizon completed its acquisition of Alltel a year ago, so last year's results did not include revenue from Alltel.

Looking ahead, Verizon executives said the company will focus more on profitability in 2010--specifically concentrating on increasing average revenue per user for wireless subscribers.

CEO Ivan Seidenberg said the company is in much better shape heading into 2010 in terms of its lineup of devices than it was going into 2009.

The Motorola Droid, launched in October, has sold well, he said. The company will adding more smartphones, such as the Palm Pre and Palm Pixi.

Killian noted that nearly 26 percent of devices sold to Verizon subscribers are either smartphones or 3G multimedia phones. In an effort to increase average revenue per user and to boost profitability in wireless, the company is now requiring all customers buying smartphones and multimedia phones to subscribe to a data plan. Smartphone data plans cost $30 a month. And the minimum multimedia plan costs $10 a month.

Seidenberg said Verizon is also looking to boost profitability in its Fios business. Fios, which delivers phone, TV, and broadband service over fiber-optic cables, is the company's growth engine on the wireline side of the business.

Verizon executives said the company has made the service available to at least half its customers. It added 153,000 customers to its Fios Internet and Fios TV services during the quarter. The company also managed to increase the average revenue per user by about 12.6 percent for Fios.

Seidenberg said he is confident in Verizon's consumer businesses, but he is troubled by a lack spending from his business customers due to the overall economy.

Fios and wireless are doing fine, he said during the conference call. "But I'm not happy about the fact that the economy has slowed down earnings on the business side. When you look at the wireline segment of the business, the economy is hurting us."

Executives said that business in the enterprise market started to pick up during the fourth quarter, but the modest rally was short-lived and did not reflect a steady return to spending.

"We were somewhat surprised by the continued level of economic pressures impacting our enterprise and wholesale markets," Killian said.

Seidenberg said he doesn't see the economy recovering until the second half of 2010. Until then, Verizon expects overall growth to be modest. But he said the company will work hard to manage through the continued downturn.

"We're facing more significant headwinds in the economy than we thought," he said. "But we will continue to build strength in organic areas of growth in the business. So we will manage our cash smart and we will return sufficient value to shareholders to keep them interested in the stock until the economy recovers."

Updated at 8:06 a.m. PDT with information from the conference call.