Verizon Communications Inc. (VZ:US), the second-largest U.S. phone company, said it continues to ride the momentum from its third-quarter performance even after superstorm Sandy disrupted its operations.
In his first investor presentation since the storm hit the Northeast U.S. on Oct. 29, Chief Executive Officer Lowell McAdam offered an upbeat appraisal of the company’s wireless and landline units. Costs related to Sandy will be outlined next month, he said at a UBS AG conference today in New York.
Verizon, the biggest telephone-service provider in the Northeast, has been rebuilding since the storm, which left cable and phone companies working to restore service to 1 million customers in the New York area. Even so, McAdam said he feels good about 2013 because of continued gains in wireless revenue and subscribers and in landline profitability.
“The messages were all very positive,” said Richard Siber, a managing director at Coral Group, a private-equity company based in Minneapolis, who specializes in wireless investments.
In the third quarter, Verizon added (VZ:US) 1.54 million net contract customers, exceeding the 901,000 estimate of analysts polled by Bloomberg. The wireless profit margin expanded to 50 percent from 49 percent in the second quarter, also exceeding analysts’ expectations.
Two of Verizon’s downtown Manhattan offices, including its headquarters, were flooded by Sandy. McAdam said the storm has accelerated the company’s plan to upgrade its facilities.
In areas where copper-line networks were damaged, the company is replacing the wires with fiber-optic cable to enable greater capacity and advanced services. McAdam declined to offer any storm cost estimates until next month.
McAdam said he saw “incremental” improving margins in Verizon’s slower-growing business-services unit, which offers phone and Internet service as well as data and applications management to corporate clients.
We need to “clean out the basement” in the division, which still hasn’t been fully integrated since the $8.44 billion acquisition of MCI Inc. seven years ago next month, McAdam said.
“We are still billing on MCI letterhead” to some accounts, he said.
McAdam said he was encouraged by services Verizon has in development to create new businesses. Redbox Instant, a video- rental and streaming joint venture with a unit of Coinstar Inc. (CSTR:US), is in tests with Verizon employees and will be in a “public beta,” or limited consumer tests, starting around the end of the first quarter or beginning of the second quarter, McAdam said. The companies had previously said the service would start by the end of this year.
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