The largest U.S. telecom players Verizon (VZ, Financial) reported its second quarter results last week topping Wall Street estimates. Concerns regarding falling mobile contract addition were more than compensation by the strength in the tablet sales. Let’s take a closer look at the quarterly results of the wireless giant.
Quarter in a Gist
The Big Red posted net earnings of $4.21 billion that translates to earnings per share (EPS) of $1.01. This is a significant up from last year’s second quarter when the wireless provider recorded $2.25 billion in net profit or $0.78 a share. Also, it should be noted that this was the sixth straight quarter when Verizon was able to record double digit growth in operating income and EPS.
The company’s top line surged by a healthy 6% to $31.48 billion compared with a year ago quarter and also beat analysts’ revenue estimates of $31.1 billion. Growth in revenue was led by solid revenue from its wireless and FiOS business. In addition, Verizon’s acquisition of 45% stake in Vodafone Group Plc in the first quarter, also added to the strength of the company as data demand for multiple devices is increasing. So joining forces with Vodafone’s wireless business brings Verizon at a very solid position.
On the other hand, Dallas-based rival AT&T (T, Financial) is preparing to expand and strengthen its offering by acquiring pay-TV satellite provider DirecTV (DTV, Financial) in a $49 billion deal. However, Verizon feels substantially secured with its current position and isn’t threatened by AT&T’s acquisition move. The company has no further plans to make and deals or acquisition.
Customer Addition
Despite strong price competition from smaller rival T-Mobile (TMUS, Financial), Verizon’s subscriber growth helped the company make good gains. During the quarter, the company added 1.4 million contract customers, which resulted in a net improvement of 941,000 subscribers over last year same period.
Of the total addition, more than 82% came from tablet sales. The company was able to sell more tablets as it gave attractive discounts on data plans. On the other hand, smartphone sales were weak. Not only this, phone bills were also reducing which pressurized margins from the wireless business. Subscriber addition for cell phone during the quarter stood at 304,000, which was not impressive. But the new tablet addition of 1.15 million was the main highlight of the results that helped the company report strong number. Tablet addition was the key driver of the company’s revenue for the period.
The company’s chief executive Lowell McAdam said that the quarter results depicted Verizon’s “strong customer growth, with equally strong financial performance, in a dynamic and competitive environment.”
Departing Thoughts
As the company has already entered into the second half of the fiscal year, it remains focused on expanding its network and maintaining profit growth while providing superior services to its customers. For the rest of the year Verizon would continue investing in its network development program. For the full year, the company’s given guidance of $16.5 billion to $17 billion on capital spending. The carrier’s key target remains expanding consolidated EBITDA margin and achieving 4% growth in consolidated revenue. The telecom provider is concentrating its resource to widen wireless and wireline margins which would maximize returns to its shareholders.
