In homes, a haunted apparatus sleeps,
that snores when you pick it up.

If the ghost cries, they carry it
to their lips and soothe it to sleep

with sounds. And yet, they wake it up
deliberately, by tickling with a finger.
-- Craig Raine, "A Martian Sends a Postcard Home"

On April 30, phone and data communications giant Verizon (NYSE:VZ) released first-quarter 2007 earnings for the period ended March 31. I think the company would be happy to instruct the Martian in the National Poetry Month snippet above in how to use a telephone.

  • Improving operating margins turn to declining net margins, mostly because discontinued operations contributed more to the bottom line last year than they did this time around.
  • Capital expenditures are pretty much non-negotiable for a company like Verizon, as the networks need service and expansion no matter what. So when operational cash flows slim down a bit, free cash flow and owner earnings both plummet.
  • Verizon is betting big on fiber optics (FiOS) and the triple-play capabilities offered thereby. AT&T (NYSE:T) has a more relaxed attitude to its own fiber rollout, while Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWX) are trying to stay ahead in the TV provider game with new technologies of their own. Check out what the Motley Fool CAPS community thinks about these companies and the rest of the telecom industry.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2007

Q1 2006

Change

Sales

$22,584

$21,231

6.4%

Net Profit

$1,495

$1,632

(8.4%)

EPS

$0.51

$0.55

(7.3%)

Diluted Shares

2,911

2,963

(1.8%)

Get back to basics with the income statement.

Margin Checkup

Q1 2007

Q1 2006

Change*

Gross Margin

60.5%

59.9%

0.7

Operating Margin

16.8%

15%

1.9

Net Margin

6.6%

7.7%

(1.1)
*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2007

Q1 2006

Change

Cash + ST Invest.

$3,450

$3,927

(12.1%)

Accounts Rec.

$10,177

$10,617

(4.1%)

Inventory

$1,780

$1,647

8.1%

Liabilities

Q1 2007

Q1 2006

Change

Accounts Payable

$13,309

$14,442

(7.8%)

Long-Term Debt

$28,073

$34,614

(18.9%)

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2007

Q1 2006

Change

Cash From Ops.

$5,044

$5,613

(10.1%)

Capital Expenditures

$4,163

$4,021

3.5%

Free Cash Flow

$881

$1,592

(44.7%)

Owner Earnings

$996

$1,320

(24.5%)

Free cash flow is a Fool's best friend.

Related Foolishness:

Time Warner is a Motley Fool Stock Advisor pick. See the difference with a free 30-day trial pass to our flagship investing newsletter.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned, but there was a Verizon work crew in his yard, digging holes in his lawn to run FiOS cabling. Fool rules are here.