Verizon Earnings Up 4.5 Percent
Monday, July 30, 2007; 4:43 PM
NEW YORK -- Verizon Communications Inc. reported second-quarter earnings that satisfied analyst expectations Monday and said its wireless arm would buy a rural cell-phone carrier to expand its reach.
Investors found reasons to dislike the news, and the stock of the country's second largest telecommunications company fell 49 cents, or 1.2 percent, to $41.51, even as the broader market rebounded from last week's losses.
Verizon Wireless said it had agreed to buy Rural Cellular Corp., which provides cell phone service in 15 states under the Unicel brand, for $757 million, or $45 per share.
That's a stiff premium over the $31.81 closing price for Rural Cellular shares on Friday, but the stock hit a high of $46.34 in early July, fueled by acquisition speculation.
On Monday, the stock soared to $42.76.
Rural Cellular, based in Alexandria, Minn., has 716,000 subscribers. Most of its network is incompatible with Verizon Wireless', but compatible with AT&T and T-Mobile phones.
Verizon Wireless said it plans to move Rural Cellular's subscribers over to phones compatible with its network, but will maintain the older network for roaming by subscribers of other carriers.
Verizon is taking on about $1.9 billion in debt along with the acquisition, but said it expected the deal to save it $1 billion in roaming fees and operations expenses. Verizon sees the acquisition closing in the first half of next year.
Telecom analyst Thomas Watts at Cowen & Co. attributed the weakness in Verizon's stock Monday to traders selling the acquirer and buying the acquired, a common strategy. But there were contributing factors in Verizon's earnings report: Verizon reported somewhat more phone line losses than expected, along with weak broadband sales.
Overall, Watts said, he came away with "a positive feeling in the quarter," and sees the company continuing to boost its earnings.
Verizon earned $1.68 billion, or 58 cents per share, from April through June, up 4.5 percent from $1.61 billion, or 55 cents per share, in the same quarter last year. The latest per-share figure matched the average forecast of analysts polled by Thomson Financial.
Last year's figure included earnings from a number of business that have since been sold or spun off, including the high-margin directories publisher. Excluding those businesses, earnings in last year's second quarter were 43 cents per share.