Strike will trim $200M from Verizon profits; settlement 'soon,' Wall St. analyst writes

Regarding the 51/2-week strike against Verizon by nearly 40,000 union members: After talking to company and union leaders, "we continue to expect the strike to end relatively soon," but it will still reduce this year's earnings for Verizon by around $200 million, or a nickel a share, writes New York-based telecom analyst Barry Sine in a report to clients of Philadelphia-based Drexel, Hamilton & Co.

Both labor and management say "a solution is possible," likely in June, Sine added.

The bosses are hurting, but not a lot, so far, while union members at larger Verizon sites "seem to be having fun picketing in the spring sunshine with on-site beer and barbecues."

He adds: "While union health-care benefits ceased on May 1, workers can retroactively sign up for benefits under COBRA with benefits taking effect up to 60 days prior. So even those incurring significant costs can wait until July 1."

One recent hopeful development: U.S. Labor Secretary Thomas Perez met with the leaders of the company and the unions in Washington in mid-May, and praised "the parties' mutual commitment to get back to immediate discussions and work toward a new contract."

Still, a big gulf exists. As the company shifts its focus to mobile technology, the striking Verizon employees - call-center workers and repair technicians - primarily work in the company's "wired" business, involving its older copper and fiber-optic lines.

The repair technicians also construct and maintain the mobile infrastructure. Job security is the main issue confronting negotiators.

Sine predicted that Verizon will lose around 150,000 FiOS video and data customers this spring as a result of the strike, "as the company's management and contractor workforce focuses on repairs, with few installations getting done."

Verizon adds were down anyway, due to asset sales in California, Florida, and Texas. The company should gain about 75,000 in the summer quarter after the strike is settled. Verizon is likely to focus in the future on new commercial accounts.

"The net savings of avoiding union benefit payments after May 1, and wages since the start of the strike, will roughly offset increased overtime for supervisors and payments to contractors, so we expect no impact on profit margins," Sine wrote. "However, with more focus on repairs and less on installs, more operating costs will be expensed and less capitalized."

If the strike goes into July, "Verizon will likely be having to delay overhead cost reductions," according to the Drexel Hamilton report. "But we do not expect this."

JoeD@phillynews.com

215-854-5194 @PhillyJoeD

www.inquirer.com/phillydeals

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