It's earnings season, which means it's time to get the scoop on what's expected from your favorite companies. Verizon Communications (NYSE:VZ) will report earnings April 30. Here's what you can expect from the call.

What analysts say:

  • Buy, sell, or waffle? Verizon attracts a lot of attention, with 35 analysts on its party line. Fifteen of them recommend buying, 19 encourage holding, and one brave analyst suggests selling. Based on more than 750 opinions, Verizon also holds a three-star rating in the Motley Fool CAPS community.
  • Revenues. On average, analysts predict that revenue will dip a modest 1.1% to $22.5 billion this quarter.
  • Earnings. Earnings are expected to drop 10% to $0.54 per share.

What management says:
Verizon is in the same boat as competitors AT&T (NYSE:T), Citizens Communications (NYSE:CZN), and Qwest (NYSE:Q), facing ever-shrinking margins for basic services. To combat the dwindling returns from basic landline services, Verizon is investing heavily in new networks and services, including its high-speed fiber-optic FiOS network to carry Internet and TV services directly into homes. According to the company "Our superior wireless, consumer broadband and global enterprise networks will differentiate us from competitors and provide Verizon with a platform for long-term, high-margin organic growth."

That platform doesn't come cheap, however. The company also states that "Earnings dilution from FiOS deployment -- which, as previously announced, will be at its peak through the first quarter 2007 -- is expected to be about 11 cents per share in the first quarter and then decline in each successive quarter in 2007." Ouch.

What management does:
Verizon's margin picture over the past 18 months shows an increasingly weak signal. While the company claims the synergies created with last year's merger with MCI have saved $600 million in 2006, the cost savings haven't yet been enough to reverse a downward trend in margins:

Margins %

9/05

12/05

3/06

6/06

9/06

12/06

Gross

66.3

65.2

64.6

63.4

62.4

60.3

Operating

21.4

18.7

19.8

19.3

18.9

17.0

Net

12.1

10.6

9.1

8.0

7.7

7.0
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It will take more time for Verizon to see the benefits of its fiber-optic network expand margins for the overall company, since the customers of its new services are only a fraction of its entire base. But continued growth in Verizon Wireless (in which Verizon Communications has a 55% stake, with Vodafone (NYSE:VOD) holding the other 45%) and broadband services has generated enough cash flow to fund the capital investments, repurchase $1.7 billion worth of shares, and fund $4.7 billion in shareholder dividends in 2006. With the capabilities to generate that kind of cash flow, Verizon can afford to invest in its infrastructure for some time yet.

Investors should see evidence this quarter that those investments are paying off. If margins continue to deteriorate in 2007, the company will have some explaining to do. Increased penetration of new services, along with greater operating margins, should show that there's light at the end of Verizon's tunnel.

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Fool contributor Dave Mock owns no shares of companies mentioned here. Vodafone is a Motley Fool Inside Value recommendation. Citizens Communications is an Income Investor recommendation. Dave is the author of The Qualcomm Equation. The Fool has a disclosure policy.