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Verizon Communications Inc. (VZ)

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Verizon Communications (VZ)

Q4 2016 Earnings Conference Call

January 24, 2016 08:30 AM ET

Executives

Michael Stefanski - SVP, IR

Matt Ellis - EVP & CFO

Analysts

Simon Flannery - Morgan Stanley

Phil Cusick - JPMorgan

John Hodulik - UBS

David Barden - Bank of America Merrill Lynch

Craig Moffett - MoffettNathanson

Michael Rollins - Citigroup

Brett Feldman - Goldman Sachs

Michael McCormack - Jefferies

Amir Rozwadowski - Barclays

Presentation

Operator

Good morning, and welcome to Verizon’s Fourth Quarter 2016 Earnings Conference Call. At this time all participants have been placed in a listen-only mode and the floor will be opened for questions following the presentation. [Operator Instructions] Today’s conference is being recorded. If you have any objections you may disconnect at this time.

It is now my pleasure to turn the call over to your host, Mr. Michael Stefanski, Senior Vice President, Investor Relations.

Michael Stefanski

Thanks Tory. Good morning, and welcome to our fourth quarter earnings conference call. This is Mike Stefanski, and I am here with our Executive Vice President and Chief Financial Officer, Matt Ellis.

As a reminder, our earnings release, financial and operating information and the presentation slides, including a supplemental information slide, are available on the Investor Relations website. A replay and a transcript of this call will also be made available on our website.

Before we get started, I would like to draw your attention to our Safe Harbor statement on Slide 2. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon’s filings with the SEC, which are available on our website. This presentation contains certain non-GAAP financial measures.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials we have posted on our website. The quarterly growth rates disclosed in our presentation slides and during our formal remarks are an on a year-over-year basis, unless otherwise noted as sequential.

Before Matt goes through our results, I’d like to highlight a few items. For the fourth quarter of 2016 we reported earnings of $1.10 per share and full year earnings of $3.21 per share on a GAAP basis. These reported results include a few non-operational items that I would like to highlight.

Our reported fourth quarter earnings include a non-cash pre-tax gain of about $1.6 billion. The largest adjustment was the mark-to-market adjustment of our pension and OPEB liabilities, which was a pretax gain of roughly $1.8 billion. This adjustment which was primarily non-cash was caused by an increase in the discount rate as well as other planned factors.

We also incurred pretax expenses of nearly $200 million primarily related to severance costs under our existing separation plan. The net impact of these items after tax approximated $1 billion or $0.24 per share. Excluding the effect of these non-operational items, adjusted earnings per share was $0.86 in the fourth quarter compared to $0.80 a year ago, a decline of 3.4%. For the full year adjusted earnings per share were $3.87 compared with $3.99 in 2015, a decrease of 3%. Recall that our 2015 adjusted EPS included $0.13 of depreciation benefit related to the three wireline properties that we sold to Frontier.

With that, I will now turn the call over to Matt.

Matt Ellis

Thanks Mike. Good morning to everyone on the call, and thank you for joining us today. I look forward to working with our investors and all of you who follow our stock and sharing progress in our strategy to deliver the promise of a digital world.

We are in a vibrant and exciting industry. Our leadership position in wireless and fiber networks, as well as our loyal and high-quality customer base, is a reflection of our commitment to continuous improvement by our outstanding employees, which places us in a great position for long-term profitable growth.

The continuous changes from technology advances and the competitive environment will provide us new opportunities to evolve and develop innovative solutions to continue to be the key player in this dynamic market. I’m energized by those challenges and the great team we have and I am excited about the coming years. My primary objective is to build on the strong foundation of this business and ensure we are always being responsible stewards of the company by running the businesses we have today as efficiently and effectively as possible, while investing responsibly to deliver long-term growth and shareholder value.

Let us now move into an overview of 2016. As expected, 2016 was a transformative year for Verizon. We demonstrated strong financial performance and returned value to our shareholders, while repositioning the business. Our core businesses are executing well in highly competitive markets, and we are on track with our strategic priorities.

During 2016, we completed wireline divestitures of three markets, negotiated new contracts with our labor unions, executed successful 5G technical trials, and gained traction in new growth businesses. Operationally in wireless with our network leadership strategy, we added 1.3 million smartphone net adds and maintained industry leading retail phone churn performance of less than 0.9% for the year and for seven consecutive quarters.

In wireline, we restructured the segment and its cost structure. Overall, we delivered solid operational and financial results, which I will go into in more detail in a few minutes. Our capital allocation was consistent with our strategy. We invested in adding capacity through densification of the 4G network, acquired Telematics, and Smart City businesses and extended ecosystems to monetize data traffic.

We reduced our unsecured debt and delivered strong value to our shareholders through the 10th consecutive increase in annualized dividends last September. Entering 2017, we are confident with our strategy and priorities to serve customers and increase value. The foundation of our strategy is a network that is ubiquitous and reliable. We will continue to invest in our networks, expand network capabilities and advance ecosystems to offer value to our customers.

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