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Verizon Communications (VZ) Tops Q2 EPS by 3c

July 21, 2015 7:31 AM EDT

Verizon Communications (NYSE: VZ) reported Q2 EPS of $1.04, $0.03 better than the analyst estimate of $1.01. Revenue was $32.2 billion, while the consensus was at $32.46 billion.

Guidance:

Regarding consolidated revenue outlook, Verizon expects a higher year-over-year growth rate in third-quarter 2015 than in second-quarter 2015. For the full year, the company estimates consolidated revenue growth of at least 3.0 percent. (The company was previously modeling 4.0 percent growth.)

Verizon Wireless Delivers Quality Customer Growth and Profitability

In second-quarter 2015, Verizon Wireless continued to deliver quality connections growth, low churn and strong profitability.

Wireless Financial Highlights

  • Total revenues were $22.6 billion in second-quarter 2015, up 5.3 percent year over year. Service revenues totaled $17.7 billion, down 2.2 percent year over year, while equipment revenues increased to $3.9 billion in second-quarter 2015 from $2.4 billion in second-quarter 2014 as more customers chose to buy new devices with installment pricing.
  • Service revenues plus installment billings increased 2.3 percent year over year. The percentage of phone activations on installment plans was about 49 percent in second-quarter 2015, compared with 39 percent in first-quarter 2015 and only 18 percent in second-quarter 2014. Verizon expects the percentage of phone activations on installment plans to continue to increase and will likely be around 60 percent in third-quarter 2015.
  • In second-quarter 2015, wireless operating income margin was 34.0 percent, up from 32.5 percent in second-quarter 2014. Segment EBITDA margin on service revenues was 56.1 percent, compared with 50.3 percent in second-quarter 2014. Segment EBITDA margin on total revenues was 43.9 percent, compared with 42.3 percent in second-quarter 2014.

Wireless Operational Highlights

  • Verizon Wireless had 1.1 million retail postpaid net additions in second-quarter 2015, nearly twice the net additions in first-quarter 2015. At the end of second-quarter 2015, the company had 109.5 million retail connections, a 4.7 percent year-over-year increase, and 103.7 million retail postpaid connections, a 5.2 percent year-over-year increase. These totals do not include wholesale or IoT connections.
  • The quality of the net additions remained strong: Verizon added 842,000 4G smartphones to its postpaid customer base in second-quarter 2015. Postpaid phone net adds totaled 321,000 as net smartphone adds of 588,000 were partially offset by a net decline of 266,000 basic phones. Tablet net adds totaled 852,000 in the quarter, and net prepaid devices declined by 126,000.
  • 4G devices now constitute approximately 73 percent of the retail postpaid connections base, with the LTE network handling about 87 percent of total wireless data traffic in second-quarter 2015. Overall traffic on LTE has essentially doubled in the past year.
  • About 7.2 percent of Verizon's retail postpaid base upgraded to a new device in second-quarter 2015. In the past year, the number of 4G smartphones in Verizon's customer base has increased by 17.8 million, to 61.6 million, an increase of about 40 percent. The company continues to see opportunities to upgrade its base of about 16 million basic phone and 9 million 3G smartphone customers to 4G devices.
  • At 0.90 percent in second-quarter 2015, retail postpaid churn improved both sequentially and year over year. Low churn is an indicator of high customer loyalty, and this was Verizon's lowest churn rate in three years.
  • Verizon's network densification plans are on schedule. These plans include deployment of small cells, DAS (distributed antenna system) nodes and in-building solutions.

Wireline Consumer Revenue Growth Driven by FiOS

In the wireline segment, Verizon reported continued strong revenue growth for consumer services.

Wireline Financial Highlights

  • In second-quarter 2015, consumer revenues were $4.0 billion, an increase of 4.5 percent compared with second-quarter 2014. Consumer revenues have now grown by at least 4 percent for 12 consecutive quarters, with FiOS revenues representing 79 percent of the total.
  • Total FiOS revenues grew 10.0 percent, to $3.4 billion, comparing second-quarter 2015 with second-quarter 2014.
  • Wireline operating income margin was 5.3 percent in second-quarter 2015, up from 2.6 percent in second-quarter 2014. Segment EBITDA margin (non-GAAP) was 23.5 percent in second-quarter 2015, compared with 23.4 percent in second-quarter 2014.

Wireline Operational Highlights

  • In second-quarter 2015, Verizon added 72,000 net new FiOS Internet connections and 26,000 net new FiOS Video connections. Verizon had totals of 6.8 million FiOS Internet and 5.8 million FiOS Video connections at the end of the second quarter, representing year-over-year increases of 8.1 percent and 6.4 percent, respectively.
  • FiOS Internet penetration (subscribers as a percentage of potential subscribers) was 41.4 percent at the end of second-quarter 2015, compared with 40.1 percent at the end of second-quarter 2014. In the same periods, FiOS Video penetration was 35.7 percent, compared with 35.3 percent.
  • Verizon saw higher-than-anticipated demand for its new Custom TV packages, with more than one-third of FiOS Video gross customer additions opting for Custom TV and migration demand from existing customers. While Custom TV adoption has an initial negative impact on revenue growth, it is expected to improve profitability.
  • By the end of second-quarter 2015, 64 percent of consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 to 500 megabits per second. The highest rate of growth is in the 75-megabit-per-second tier, to which 23 percent of FiOS customers subscribe.
  • Evolving its wireline network, Verizon continues to replace portions of its residential copper network with fiber optics to provide customers with a more reliable and resilient infrastructure. In second-quarter 2015, Verizon migrated 51,000 customers who had been using copper connections, toward a full-year goal of 200,000.
  • Verizon Enterprise Solutions helped clients around the globe manage risk, improve customer experience, and drive growth and business performance in the second quarter. The company deployed innovative enterprise-grade network, cloud, security, IoT, mobility and other business solutions for some of the world's leading brands, including Scripps Networks Interactive, Lear Corporation, CDK Global, Inc., Aurubis and Allstate; energy clients Marathon Petroleum Corporation, Peninsula Lighting Company and PSE&G; healthcare clients Bright! Now Dental, Inovalon and Moda Health; and public sector clients U.S. Department of the Interior and the State of California.

For earnings history and earnings-related data on Verizon Communications (VZ) click here.



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