Verizon Communications (VZ - Free Verizon Stock Report), a telecommunications giant and Dow-30 component, recently reported December-period earnings of $0.45 a share. That was well below our estimate and the year-earlier result, on a rather impressive 5.7% year-over-year revenue advance. Nevertheless, investors seemed rather unphased, with the issue's value unchanged since the earnings release.
As usual, Verizon Wireless (55% owned by Verizon Communications) was responsible for a lion's share of the top-line growth, with the segment delivering the highest number of retail postpaid net additions of any quarter in its history. Indeed, Verizon Wireless added 2.2 million net retail connections in the quarter, with the recent release of the iPhone 5 responsible for a significant portion of the good news.
Moreover, VZ Wireless total revenues came in at $20.0 billion, up 9.5% year over year, bolstered, in part, by a 6.6% 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. Additionally, at yearend 2012, smartphones accounted for more than 58% of the VZ Wireless retail postpaid customer phone base, up from 53% at the end of the September interim. As we have pointed out in the past, this improving metric certainly augurs well for ARPA growth going forward, as smartphone users typically pay additional data-related fees.
However, it wasn't all wine and roses during the December quarter. Superstorm Sandy had a rather significant impact on Verizon, but since it was of a nonrecurring nature, we have chosen to exclude its effects from our earnings presentation. Nevertheless, VZ's fourth-quarter margins felt the effects of third-party promotions drawing sales volumes out of retail stores, which increased costs. Moreover, the aforementioned introduction of the iPhone 5 did no favors to the bottom line, as such devices come with a hefty subsidy, which puts pressure on margins. Yet, we look for wireless margins to return to more normalized levels this year, aided by management's emphasis on cost containment. Notably, we expect that VZ will pare an additional $2 billion from its wireless cost structure in 2013.
On a separate note, Verizon's Wireline division finished off the year with revenues of $14.0 billion, a 3.2% uptick from the year-earlier figure and its highest annual revenue growth rate in consumer wireline in 10 years. This was driven by the addition of 144,000 net new FiOS Internet connections and 134,000 net new FiOS Video connections during the quarter, which resulted in an increase in FiOS penetration rate (subscribers as a percentage of potential subscribers).
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.