Verizon (VZ) Tops Q4 Earnings and Revenues, Expenses Fall

Verizon Communications Inc. VZ reported strong financial numbers in the fourth quarter of 2015. Both the top and the bottom line surpassed the respective Zacks Consensus Estimate.

Adjusted earnings per share came in at 89 cents, beating the Zacks Consensus Estimate by a penny. Quarterly GAAP net income was $5,513 million compared with a net loss of $2,148 million in the year-ago quarter.

Quarterly total revenue increased 3.2% year over year to $34,254 million outpacing the Zacks Consensus Estimate of $34,132 million.

Total operating expenses in the reported quarter was $24,510 million, down a significant 30.6% year over year. Meanwhile, operating income stood at $9,744 million compared with an operating loss of $2,136 million in the year-ago quarter.

Cash Flow & Liquidity

In full year 2015, Verizon generated $38,930 million of cash from operations compared with $30,631 million in 2014. Free cash flow in 2015 was $21,155 million compared with $13,440 million in 2014.

At the end of 2015, Verizon had $4,820 million of cash and short-term investments and $110,194 million of long-term debt compared with $11,153 million and $110,536 million respectively at the end of 2014. The debt-to-capitalization ratio was 0.85 at 2015-end compared with 0.89 a year ago.

Wireless Segment

Total revenue at the segment was $23,734 million, up 1.2% year over year. Service revenues were down 5.6% to $17,195 million. Other revenues totaled $1,141 million, up 12.1%. Equipment revenues increased a substantial 27.9% to $5,398 million.

Operating expenses decreased 5.6% to $16,935 million. Operating income improved 23.6% to $6,799 million. Quarterly operating income margin stood at 28.6% in comparison with 23.5% in the fourth quarter of 2014. Segment EBITDA increased 18.9% to $9,104 million. EBITDA margin was 38.4% compared with 32.6% in the prior-year quarter.

At the end of 2015, Verizon had 112.108 million retail subscribers, up 3.6% year over year. Out of the total, retail postpaid subscriber count was 106.528 million, up 4.4% and retail prepaid user count was 5.508 million, down 9.0%. During the reported quarter, the company added 1.519 million postpaid customers (down 23.5% year over year) while prepaid customer count decreased by 0.157 million.

Quarterly retail postpaid churn rate was 0.96% compared with 1.14% in the year-ago quarter whereas total retail churn rate was 1.23% against 1.39% in the year-ago quarter. Meanwhile, retail postpaid average revenue per account (ARPA) dropped 6.6% to $148.30. In the reported quarter, 93.7% of the total activated phones were smartphones compared with 93.6% in the prior-year quarter.

Wireline Segment

Total revenue at the segment was $9,473 million, down 0.9% year over year. Consumer retail revenues were up 2.6% at $4,082 million. Small business revenues grossed $572 million, down 5.6%. Strategic services revenues declined 1.7% to $2,075 million. Core revenues were down 6.1% to $1,172 million. Global wholesale revenues decreased 0.2% to $1,498 million and Other revenues declined 36.8% to $74 million.

Operating expenses decreased 3.9% to $8,784 million. Meanwhile, operating income jumped a whopping 65.6% to $689 million. Quarterly operating income margin came in at 7.3% against 4.4% in the year-ago quarter. Segment EBITDA fell a mere 0.4% to $2,292 million. EBITDA margin stood at 24.2% compared with 23.9% in the year-ago quarter.

At the end of 2015, FiOS video subscriber base was 5.827 million (up 3.2% year over year), FiOS Internet subscriber count stood at 7.034 million (up 6.3%) and FiOS digital voice residence connections totaled 4.754 million (up 3.3%). In the quarter under review, Verizon added 20,000 FiOS video subscribers, 99,000 FiOS Internet customers and 51,000 FiOS digital voice residential connections.

High-speed Internet connection tally dropped 15.3% to 2.194 million while total broadband connection number rose 0.2% to 9.228 million, Primary residence switched access connections decreased 14.5% to 4.784 million and Primary residence connections fell 6.5% to 9.538 million. Total retail residence voice connections declined 6.9% to 9.885 million and total voice connections decreased 7.1% to 18.387 million. Verizon lost 94,000 high-speed Internet subscribers in the reported quarter.

Outlook for 2016

Verizon expects consolidated adjusted EBITDA margin for 2016 to be consistent with full-year 2015. The company also expects consolidated capital spending between $17.2 billion and $17.7 billion and a pension funding requirement of approximately $550 million in 2016.

Stocks to Consider

Verizon currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Windstream Holdings Inc. WIN, Ruckus Wireless Inc. RKUS and United States Cellular Corp. USM. All the three stocks currently carry a Zacks Rank #2 (Buy).

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