Verizon Communications (VZ - Free Verizon Stock Report), a telecommunications giant and Dow-30 component, reported first-quarter earnings of $0.68 a share, a couple of pennies above our estimate and a hefty 15% increase over the year-earlier result, on a solid 4.2% top-line improvement. Investors seem rather pleased with VZ's performance, with its stock up about 3% on the news, and about 19% since early February.
As is typically the case, the shining star here was Verizon Wireless (55% owned by Verizon Communications), which added 677,000 retail postpaid net additions (a 35% year-over-year jump) during the interim. Moreover, the division activated four million iPhones during the March quarter, which equates to 56% of all smartphones activated during the period. What's more, at the end of the quarter, the wireless operating income margin was 32.9% and the segment EBITDA margin on service revenues was 50.4%, both record highs. Late last year, margins were under a bit of pressure, as the iPhone comes with a hefty subsidy. However, we look for wireless margins to return to more normalized levels this year, bolstered by management's emphasis on cost containment. Indeed, we expect VZ will cut an additional $2 billion from its wireless cost structure this year.
In addition, VZ Wireless’ total revenues came in at $19.5 billion, up 6.8% year over year, driven, in large part, by a 6.9% increase in retail postpaid ARPA (average revenue per account). Verizon Wireless now reports ARPA instead of ARPU, following the recent rollout of the Share Everything Plan and as customers continue to add multiple devices to their accounts. Moreover, at the end of the first quarter, smartphones accounted for just over 61% of the Verizon Wireless retail postpaid customer phone base, up from 58% at the end of the December period. This certainly augurs well for ARPA growth going forward, as smartphone users typically pay additional data-related fees.
The rollout of VZ Wireless' 4G LTE mobile broadband network in the United States is going quite well, with the service currently available to 287 million people in 491 markets across the United States, covering more than 95% of Verizon's current 3G network footprint. And the company is certainly dedicated to enhancing its 4G LTE device lineup, having recently launched a number of new smartphones, tablets, and other devices.
Finally, the Wireline unit's first-quarter performance was not exceptional. To wit, the division reported a 1.2% drop in year-over-year revenues. FiOS revenues grew 15.1%, to $2.6 billion, in the March period, thanks to the addition of 188,000 net new FiOS Internet connections and 169,000 net new FiOS Video connections. As a result, the FiOS penetration rate (subscribers as a percentage of potential customers) continued to improve, and the FiOS network was in just over 17.8 million premises by the end of March. However, the solid performance turned in by FiOS was not sufficient to overcome uninspiring global enterprise revenue comparisons. All told, though, this was a solid earnings report.
About The Company: Verizon Communications was created by the merger of Bell Atlantic and GTE in June of 2000. It is a diversified telecom company with a network that covers a population of about 290 million and provides service to nearly 91.2 million. In the last few years, has acquired MCI (1/06) and Alltel (1/09). The company is also the largest provider of print and on-line directory information. Has a wireline presence in 28 states & Washington, D.C. and a wireless presence in every U.S. state & D.C., as well as operations in 19 countries.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.