Verizon swings to loss on pension costs
Strong sales of the iPhone weren't enough to keep Verizon Communications in the black during the fourth quarter.
Growth with FiOS was respectable, but with Verizon's wireline business having long ago taken a back seat to its wireless operations, it had minimal effect on quarterly results.
The telecommunications giant said today it lost $2.02 billion, despite record growth in its wireless business, after noncash pension charges ate into profits. Last year, the company posted profits of $2.64 billion.
Verizon posted a 7.7 percent increase in company-wide sales, which hit $28.43 billion for the three months ended Dec. 31.
Excluding pension charges, it posted earnings per share of 52 cents, missing the consensus 54 cents estimate of analysts polled by Zacks.
Verizon added 201,000 FiOS broadband and 194,000 FiOS video accounts. Taking into account subscriber losses largely in the DSL market, Verizon reported a net increase of 98,000 broadband connections.
At the end of the fourth quarter, the company claimed 4.1 million FiOS video subscribers and 4.8 million FiOS Internet subscribers. Adding DSL connections, the company had a total of 8.6 million wireline broadband customers. Verizon did not provide statistics on how many of its customers were taking a bundle with DSL and DirecTV television service.
By the end of the year, Verizon extended FiOS availability to another 900,000 homes; it now tallies 16.9 million homes passed.
FiOS ARPU was up about $2 (about 8.5 percent) from the like quarter a year ago, to exceed $148.
The heavy cost of subsidizing the Apple iPhone and its other smartphones also pressured margins, CFO Fran Shammo said in a conference call with investors. Shammo warned earlier this month that strong sales of the iPhone would result in a 500 to 600 basis point decrease in wireless margins.
Verizon Wireless' operating income slipped 10.7 percent to $4.3 billion, down from $4.85 billion last year, even as overall sales rose 13 percent to $18.25 billion.
The company sold 4.2 million iPhones in the fourth quarter as customers flocked to the iPhone 4S, which launched in October.
Smartphones comprised 70 percent of all postpaid devices sold during the quarter and now make up 44 percent of Verizon Wireless' postpaid base, up from just 28 percent during the same period last year.
In addition to the costs of expanding its LTE network, Verizon Wireless also had to spend money on "3G capacity requirements driven by the Apple iPhone," Shammo said.
Even so, Verizon Wireless' capital expenditures dropped 20 percent to $1.78 billion in the fourth quarter, though its capital expenditures rose 6.3 percent to $8.9 billion over the course of the full year. Company-wide capital expenditures for the full-year 2011 were down slightly to $16.2 billion.
The number of new customers signing up for Verizon Wireless service was the highest in three years. The company added a net 1.2 million postpaid subscribers and 252,000 prepaid subscribers after the September addition of a $50 no-contract plan drew in new customers. The net loss of 490,000 wholesale customers somewhat offset postpaid and prepaid growth, bringing Verizon Wireless' total net connections to 969,000 during the fourth quarter, a 15 percent decline over the previous year.
Postpaid churn dipped to 0.94 percent, from 1.01 percent last year. Overall retail churn also declined, coming in at 1.23 percent from 1.37 percent last year.
Data revenue continued its steady rise, climbing 19 percent to $6.27 billion, and now comprises 41 percent of total service revenues. Postpaid ARPU climbed 2.5 percent to $54.80, helped along by a 14 percent rise in data ARPU, which hit $22.76.
Verizon's stock dipped slightly in early morning trading on the New York Stock Exchange, down about 2 percent by 10 a.m. EST.
– CED's Brian Santo contributed to this report