By Ritsuko Ando
NEW YORK (Reuters) - Verizon Communications Inc. posted a higher-than-expected quarterly profit on Monday on strong wireless sales and improved margins, offsetting a fall in landline users.
Executives said on a conference call that the No. 2 U.S. phone company did not expect a significant impact from the weaker economy, though demand from clients in the financial sector could soften.
Verizon shares slid 2 percent to $33.71 in early New York Stock Exchange trading.
Second-quarter revenue rose 3.7 percent to $24.12 billion, in line with Wall Street expectations, but Verizon's wireless profit margin was ahead of some forecasts.
Stifel Nicolaus analyst Chris King said Verizon's wireless profit margin of 45.6 percent compared to his prediction of 44.9 percent. "Verizon continues to hum along at a very impressive rate," he said.
King also said Verizon's territory, which includes New York and New Jersey, helped it weather the economic downturn more easily than industry leader AT&T Inc., which serves areas like Florida, hit hard by the housing crisis.
"You are clearly seeing some geographic differences in the areas they operate in with regards economic pressures," King said.
Verizon said its second-quarter profit rose to $1.88 billion, or 66 cents a share, from $1.68 billion, or 58 cents a share, a year earlier.
Excluding items such as merger integration costs, earnings per share were 67 cents, beating the average analyst forecast for 64 cents a share, according to Reuters Estimates.
Verizon said it expected its positive momentum to continue in the second half, and was comfortable considering a dividend increase in the fall.
Verizon Wireless, owned by Verizon and Vodafone Group Plc, added a net 1.5 million subscribers in the quarter, taking its total subscriber base to 68.7 million.
In addition to growth in the wireless business, Verizon reported growth in its FiOS high-speed Internet and video service, a key part of its strategy to bolster its home phone business even as more customers disconnect land lines.
Verizon said its residential switched access lines fell 11.4 percent from a year earlier.
It added 176,000 new FiOS TV customers, bringing the total to nearly 1.4 million. It added 187,000 FiOS Internet customers, to a total of 2 million.
Verizon begins to roll out FiOS in New York City on Monday, competing with cable service providers like Time Warner Cable and Cablevision. However, it faces a possible strike by union workers if it does not resolve a dispute over a labor contract that is set to expire on August 2.
Verizon said it was optimistic that it would reach a fair settlement with the union.
"Verizon continued to grow in all key strategic areas in the second quarter, despite the economic headwinds," said Verizon Chairman and Chief Executive Ivan Seidenberg.
(Reporting by Ritsuko Ando and Sinead Carew, editing by Maureen Bavdek)
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