America's largest telephone company, VerizonCommunications (NYSE:VZ), is also one of America's most widely held stocks -- as well as one of its largest employers. But it is shrinking on that third front, as some 21,600 workers, nearly 10% of its 220,000-plus workforce, have signed up for early retirement.
What's going on here? Well, the phone business hasn't been an easy one lately. Verizon's local phone operations have been in a slump, ironically, partly due to strength in its wireless division. As more people sign up for cell phones, the demand for land lines (which are expensive to maintain) dwindles.
Still, to many people, the news of a slimmed-down workforce is welcome. Investors are likely to smile because in the long run, the company's expenses will be considerably lighter. Salaries and benefits can be big drags on profitability. (Of course, in the short run, the early retirement package, which is likely more than a gold watch, will cost a chunk of change.) Meanwhile, remaining employees are probably relieved, as with people leaving now, future layoffs are less likely or will at least be less severe. (And a less stressed-out workforce is something investors should welcome, too.)
Verizon's challenges are not over, though. Its debt is significant, at $45.5 billion. As Jeff Fischer noted in September, that while Verizon "created about $10 billion in free cash flow last year, it paid out 40% of that in a dividend."
Still, the company is waxing optimistic. Vice Chairman Larry Babbio stated recently that the current (fourth) quarter would be "operationally stronger" than the third, and that the next would be even stronger. Operating margins are also expected to improve. In the last completed quarter, revenues at Verizon inched up to $17.2 billion from 17.1 billion, though domestic phone sales slumped by 4%.
Investors interested in Verizon, perhaps attracted by that hefty 4.7% dividend, should at very least read its last annual report or two, for starters. Look into its peers and competitors, too: SBC Communications (NYSE:SBC), BellSouth (NYSE:BLS), AT&T (NYSE:T), Qwest (NYSE:Q), Nextel (NASDAQ:NXTL) and Sprint (NYSE:PCS), are where you want to start.
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