Verizon Communications Inc. (VZ) reported better-than-expected financial results in the fourth quarter of 2014. The bottom line was exactly in line with the Zacks Consensus Estimate while the top line significantly surpassed the same. However, increased churn rate, higher customer acquisitions costs and provision for pension payment are near-term concerns. Verizon currently carries a Zacks Rank #3 (Hold).
Quarterly net loss came in at $2,148 million or 54 cents per share compared with a net income of $7,916 million or $1.76 per share in the year-ago quarter. Excluding pension and other post-employment benefit liabilities, adjusted earnings of 71 cents per share were on par with the Zacks Consensus Estimate.
Quarterly total revenue increased 6.8% year over year to $33,192 million significantly outpaced the Zacks Consensus Estimate of $32,532 million. The year-over-year upside was driven by increased demand for Verizon Wireless, FiOS and Strategic enterprise services.
Total operating expenses in the reported quarter was $35,328 million, up a whopping 85.9% year over year. Operating was $2,136 million compared with an operating income of $12,063 million in the year-ago quarter. Quarterly adjusted EBITDA (earnings before interest, tax, depreciation & amortization) stood at approximately $2,464.2 million.
Cash Flow & Liquidity
During fiscal 2014, Verizon generated $30,631 million of cash from operations compared with $38,818 million in fiscal 2013. Free cash flow in fiscal 2014 was $13,440 million compared with $22,214 million in fiscal 2013.
At the end of 2014, Verizon had $11,153 million of cash and short-term investments and $113,271 million of debt outstanding compared with $54,129 million of cash and short-term investments and $93,591 million of debt outstanding at the end of 2013. The debt-to-capitalization ratio was 0.89 at end-2014 against 0.48 at the end of 2013.
Wireless Segment
Total revenue at the segment was $23,449 million, up 11% year over year. Retail Service revenues were up 2.6% to $17,411 million. Other Service revenues were $798 million, up 7.3%. Equipment revenues increased 74.4% to $4,222 million and Other revenues were up 2.5% to $1,018 million.
Operating expenses increased 20.5% to $17,947 million. Consequently, operating income dropped 11.7% to $5,502 million. Quarterly operating margin came in at 23.5% against 29.5% in the year-ago quarter. Segment EBITDA decreased 8% to $7,654 million. EBITDA margin was 32.6% compared with 39.4% in the prior-year quarter.
At the end of 2014, Verizon had 108.211 million retail subscribers, up 5.3% year over year. Out of the total, retail postpaid subscriber count stood at 102.079 million, up 5.5% and Retail prepaid subscriber count was 6.132 million, up 1.4%. During the reported quarter, the company added 1.986 million postpaid customers (up a whopping 26.3% year over year) and 0.081 million prepaid customers (up by a marginal 1.3% year over year).
Quarterly retail postpaid churn rate was 1.14% compared with 0.96% in the year-ago quarter whereas total retail churn rate was 1.39% against 1.27% in the year-ago quarter. Retail postpaid average revenue per account (ARPA) grew 1% to $158.82.
In the reported quarter, 93.6% of the total numbers of activated phones were smartphones compared with 88.9% in the prior-year quarter. Strong sale of Apple Inc.’s (AAPL) iPAD and increased adoption of Google Inc.’s (GOOGL) Android-based smartphones and Microsoft Corp. (MSFT) developed Windows smartphones also drove subscriber numbers.
Wireline Segment
Total revenue at the segment was $9,560 million, down 1.6% year over year. Consumer retail revenues were up 4.1% to $3,977 million. Small business revenues were $606 million, down 3.7%. Strategic services revenues climbed 1.5% to $2,112 million. Core revenues were down 13.3% to $1,259 million. Global wholesale revenues decreased 5.8% to $1,509 million and Other revenues decreased 23% to $97 million.
Operating expense decreased 4.7% to $9,144 million. Operating income also jumped by a whopping 265% to $416 million. Quarterly operating margin came in at 4.4% against 1.2% in the year-ago quarter. Segment EBITDA improved 4.3% to $2,282 million. EBITDA margin was 23.9% compared with 22.5% in the year-ago quarter.
At the end of 2014, FiOS video subscriber base was 5.649 million (up 7.4% year over year), FiOS Internet subscribers were 6.616 million (up 9%) and FiOS digital video residence connections were 4.602 million (up 8.3%). In the reported quarter, Verizon added a net 116,000 FiOS video subscribers, 145,000 FiOS Internet subscribers and 88,000 FiOS digital video residence connections.
High-speed Internet connection dropped 12% to 2.589 million, total broadband connections grew 2.1% to 9.205 million, Primary residence switched access connections decreased 13.7% to 5.596 million and Primary residence connections fell 5.3% to 10.308 million. Total retail residence voice connections dropped 4.9% to 10.198 million and total voice connections decreased 6.1% to 19.795 million.
On a quarterly basis, consumer ARPU was $129.29, up 9.7% year over year. FiOS revenues were $3,308 million, up 11.6% year over year. Strategic services as a percentage of total Enterprise revenues, were 62.7% compared with 58.9% in the year-ago quarter.
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