VZ Controlling Costs Very Well

For Thomas' preview heading into the Verizon conference call, please click here.

Verizon (VZ - commentary - Cramer's Take) reported a decent quarter given the macro backdrop, with wireless doing a little better than expected offset by a faster drop-off in wireline.

For the quarter just ended, the company posted EPS of 66 cents on total revenue of $24.8 billion. Wireless represented $12.7 billion, while total wireline represented $12.2 billion.

The company added 2.1 million wireless subs, 225,000 FIOS subs and lost 571,000 wireline subs. The FIOS subs were right in line with my preview, but the wireline losses were not as bad as expected.

The company will provide fiscal 2009 guidance in January. While Verizon hasn't seen any slowdown in wireless yet and doesn't anticipate any pricing pressure (in fact, data rates have helped to boost wireless average revenue per unit), management believes that consumer spending will be somewhat lighter and that business spending will be somewhat curtailed until next year.

Management will bring capital expenditures down as percentage of sales, and the company will roll out first quarter 2009 slower than it did first quarter 2008. Verizon continues to cut costs, especially on the wireline side.

The company continues to work toward LTE (4G), but management is not discussing dollar amounts on the timeline. The Alltel acquisition still looks as though it should be accretive in its first year, although management hinted that financing costs will increase.

Overall, it was a nice quarter with solid cost control in a sluggish economy. And in this market, anything that can be viewed as defensive in nature with a stable growth outlook (and dividend to boot) will be rewarded.

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At the time of publication, Thomas had no positions in the stocks mentioned, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm?s senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor?s degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.