Verizon Q1 2015 Results Top Estimates Despite Rising Competition

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Apr 21, 2015
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Verizon (VZ, Financial) recorded better than expected first quarter 2015 results, thanks to strong wireless customer addition. The telecom player’s stock went up in pre-market trading and rose 0.6% to $49.65. The wireless market is getting more and more competitive, and the top player is feeling the heat as smaller rivals T-Mobile (TMUS, Financial) and Sprint (S, Financial) get more aggressive with their plans. As such, Verizon had expected wireless service cancelation to elevate, but it came in better than expectation. Let’s look into the company’s quarter numbers and see where it stands.

A quick look at the numbers
Verizon’s revenue edged up 3.8% to $4.34 billion, beating Reuters analysts’ estimate of $32.3 billion. The growth is attributable to the wireless segment that saw revenue grow 6.9% to $22.3 billion. Operating expense of the wireless segment rose 7.1% to $14.5 billion and operating income came in at $7.8 billion. In contrast, the wireline segment’s revenue dropped 2% to $9.5 billion. Operating expense of the segment reduced 4.8% to $9 billion, and operating income increased by a staggering $187.2% to $0.4 billion.

Overall, Verizon posted quarterly net profit of $4.3 billion, 27.5% down from a year ago quarter. This translated to earnings per share of $1.02, which is higher than analyst expectation of $0.95. The company’s operating expenses increased 1.5% to $24 billion and operating income rose to nearly $8 billion in comparison to last year’s $7.2 billion. The company was able to expand its EBITDA margin to 37.4% from 36.7% recorded in the year ago quarter.

The company generated $10.2 billion of cash from its operations, which is comparatively higher from $7.1 billion recorded in the first quarter of last year. The company’s free cash flow stood at $6.5 billion over last year’s $3 billion.

Subscriber addition and more...
In the fourth quarter of last year Verizon started showing vulnerability to the hostile pricing and promotional strategies adopted by its competitors. However, the first quarter of 2015 suggests that the national carrier appears to be getting its groove back. By the quarter end Verizon’s total retail subscriber base stood at 108.6 million, 5.1% higher than last year. Of this, 102.6 million are retail postpaid subscribers and around 6 million are retail prepaid customers.

During the quarter, 565,000 postpaid subscribers were added. Postpaid churn rate of 1.03% was better than last year’s 1.07%. Verizon customer addition may not have been as high as some analysts expected, but the lowering churn rate is definitely a positive sign.

However, Verizon’s postpaid average revenue per account was $156.14, down from $159.67. The Big Red’s CEO Lowell McAdam is confident about the company’s prospects and capability to maintain the growth momentum by enhancing customer service and adding value to its shareholders’ return. He said, "We expanded our base of customers seeking a premium experience, and we grew revenues, earnings and cash flow during a quarter in which we also took significant steps to sharpen our strategic focus."

The nation’s top carrier has been facing intense competitive pressure from the likes of AT&T (T, Financial), T-Mobile and Sprint. T-Mobile has come up with aggressive plans to poach customers from rival network. The fourth largest carrier is attracting customers by paying subscribers for ditching other networks and signing up for its network. In response to such moves, Verizon slashed the rate of several of its plans. The company expects these steps to help in retaining its customers. Verizon plans to maintain a disciplined approach with the aim of retaining and expanding its lucrative customers, which should support the company see better results and post a stronger second quarter.