Before the opening bell today, the largest U.S. mobile service
Verizon Communications Inc.
) reported second quarter 2012 adjusted earnings of 64 cents per
share. The quarter's earnings were at par with the Zacks Consensus
Estimate and 7 cents above the year-ago earnings.
The company again generated double-digit earnings growth and
significant cash flow growth.
Total revenue increased 3.7% year over year to $28.55 billion and
barely beat the Zacks Consensus Estimate of $28.53 billion.
Improved revenue performance was mainly driven by continued strong
wireless services, FiOS fiber-optic services and strategic
EBITDA (earnings before interest, taxes, depreciation and
amortization) rose 8.9% year over year to $9.8 billion while
operating income increased 16.3% to $5.7 billion in the reported
revenue increased 7.4% year over year to $18.58 billion on the back
of increased smartphone penetration and high retail post-paid
average revenue per user (ARPU). Service, Equipment and Other
revenues grew 7.3%, 0.9% and 24.0%, respectively.
Data revenue spiked 18.5% from the year-ago quarter and represented
43.6% of service revenue.
Verizon added 1.2 million retail subscribers, including 888,000
post-paid and 290,000 prepaid customers. At the end of the second
quarter, the company had 94.2 million retail subscribers (including
88.8 million post-paid and 5.3 million prepaid customers),
reflecting a 4.9% year-over-year increase.
Despite sluggish growth in the U.S. mobile market, rapid expansion
of 4G Long-Term Evolution (LTE) services, strong sales of
) iPhone and increased adoption of
) Android smartphones led to the strong growth in retail wireless
subscribers. At the end of the reported quarter, smartphones
accounted for 50% of retail post-paid wireless, up from 47% in the
Further, the company is way ahead of its major rivals
Sprint Nextel Corp.
) in deploying LTE services. As of July 19, the Verizon LTE
deployment covered 337 markets with more than 200 million people.
Retail post-paid churn (customer switch) was lowest in the four
years at 0.84% in the reported quarter compared with 0.89% in the
year-ago quarter. Total retail churn also declined to 1.11% from
1.22% in the year-ago quarter. Retail post-paid ARPU increased 3.7%
year over year, the highest growth in three years and retail
service revenue increased 3.4% from the year-ago quarter.
revenue dipped 3.1% year over year to $9.9 billion due to continued
decline in global business. Momentum for the FiOS fiber-optic
network and sale of strategic service in the U.S. however remained
During the reported quarter, Verizon added 120,000 and 134,000 new
customers to its FiOS Video and FiOS Internet services,
respectively. The company exited the second quarter with 4.5
million (up 16.2% year over year) FiOS Video customers and 5.1
million (up 14.9%) FiOS Internet customers.
The penetration rate (subscribers as a percentage of potential
subscribers) of both FiOS Internet and FiOS Video increased to
approximately 36.6% and 32.6%, respectively, across all markets
from the year-ago respective levels of 33.9% and 29.9%.
APPLE INC (AAPL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
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VERIZON COMM (VZ): Free Stock Analysis Report
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Strategic services revenue increased 4.4% from the year-ago
quarter, representing 52% of global enterprise revenue in the
Total Broadband connection at the end of the second quarter was 8.8
million, up 2.6% year over year. The DSL-based HSI connections fell
10.8% year over year to 3.6 million.
The company exited second quarter with cash and cash equivalents of
$10 billion, which is less than $13.4 billion at year-end 2011. Net
debt inched up to $42.4 billion from $41.8 billion at the end of
fiscal 2011. Net debt-to-adjusted EBITDA remained stable at 1.2
times compared with year-end 2011.
Verizon generated $15.3 billion of cash from operations in the
reported quarter compared with $12.8 billion in the year-ago
quarter. Capital expenditure increased to $7.8 billion from $3.9
billion in the year-ago quarter.
For fiscal 2012, the company expects to generate double-digit
earnings growth of 10% on continued healthy wireless margins and
improving wireline margins. Capital expenditures are expected to be
flat or down from $16.2 billion reported last year.
We believe Verizon is poised to generate strong revenue and
earnings this year based on the introduction of smartphones,
tablets and data devices in the Wireless segment as well as
continued strong FiOS fiber-optic network and strategic services,
including cloud-computing business, in the Wireline business.
However, persistent erosion in access lines, uncertain returns from
the 4G wireless and wireline FiOS networks, iPhone subsidies,
hindrances in spectrum deals and intense competition from cable
companies and other alternative service providers are threats to
We are currently maintaining our long-term Neutral rating on
Verizon. For the short term, (1-3 months), the stock retains a
Zacks #3 (Hold) Rank.