Verizon Communications (VZ –Free Verizon Stock Report), a telecommunications giant and Dow-30 component, reported second-quarter earnings of $0.73 a share, on par with our estimate and a 14% improvement on the year-earlier result, on a 4.3% top-line improvement. Although revenue numbers were in line with what we were expecting, they fell short of consensus expectations, and the stock is currently down about 2%. As is usually the case, the company's wireless business was the shining star during the quarter, and its traditional wireline division took a bit of the shine off that star.
Notably, during the June interim, Verizon Wireless (55% owned by Verizon Communications), added 941,000 retail postpaid net subscribers, which equates to a 6% year-over-year uptick and a hefty 39% sequential improvement. Total wireless revenues came in at $20.0 billion, up 7.5% year over year, driven, in part, by a 6.4% uptick 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. In addition, at the end of the June interim, smartphones accounted for more than 64% of the Verizon Wireless retail postpaid customer phone base, up from 61% at the end of the March quarter. Any increase in this metric augurs well for ARPA growth going forward, as smartphone users typically pay additional data-related fees. Separately, wireless operating income margins continue to improve, after coming under significant pressure last year, due to the introduction of the iPhone, which comes with a rather hefty subsidy. Notably, the June-quarter wireless operating income margin came in at 32.4%, up from 30.8% a year earlier.
As of the end of June, Verizon Wireless had substantially completed the deployment of its 4G LTE network, which now covers more than 99% of its current 3G network footprint. What's more, the company activated 4G LTE data service in Alaska, resulting in 4G LTE service being available in all 50 states.
Going forward, we look for the company's capital expenditures to increase, to between $16.4 billion and $16.6 billion for this year, as VZ anticipates improved demand for wireless data consumption and begins to deploy its AWS (advanced wireless services) spectrum during the latter half of this year.
Lastly, Verizon Wireline's performance during the second quarter was certainly nothing to write home about. Although the FiOS business continues to do quite well (it added 161,000 net new Internet connections and 140,000 net new video connections during the quarter), overall revenue generated by the Wireline division dropped 2%, as many corporate and government customers are tightening their purse strings.
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.