Freedom isn't free -- and neither is cost-cutting, as
investors learned Tuesday.
Like its Baby Bell peers, the big New York telco has been
increasingly focused on slashing its payroll in recent months, in an effort to convert stagnant sales into growing profits. Last month the company
concluded a round of buyout offers, trimming its workforce by some 10%. The news was warmly greeted by Wall Street, which continues to applaud efforts by the nation's biggest phone company to improve its finances.
But on Tuesday the bill came due, and the tab isn't small. Verizon said the 21,260 buyouts will saddle fourth-quarter earnings with an after-tax charge of $2.8 billion, or 99 cents a share. The company also plans a first-quarter charge of $700 million to $900 million to cover pension settlements.
The charges will sap the company's earnings, which are expected to be around 58 cents a share for the fourth company, going by the Thomson First Call analyst consensus. But Verizon said it is intent on making the right moves for the long term.
"Through this voluntary program, we have swiftly and aggressively reduced ongoing expenses," finance chief Doreen Toben said. "By capturing the productivity gains created by process improvements, we will achieve about $1 billion in annual pretax cash savings from this program, which takes costs out of areas of the business that are burdened by harmful regulatory policies."
The company said the pension-related charges won't affect required 2004 pension trust contributions, which Verizon earlier this year put at $125 million.
The massive accounting hit comes as the big mainstream telcos face challenges on a number of fronts. Like rivals
, Verizon has gotten into the fast-growing wireless field through a joint venture. But the loss of paying customers in the companies' core local-phone business continues to penalize the Bells even as new threats, such as voice-over-Internet-protocol calling, emerge.
On Tuesday, Verizon slipped 42 cents, to $32.59, keeping the stock within striking distance of its 52-week low of $31.10.