Verizon (NYSE: VZ ) released its fourth-quarter earnings statement today, and a quick look at its share price -- dropping almost 3% in the first half-hour of the day -- will tell you it wasn't received well. But how bad could it really be? After all, it did show company-record quarterly revenue growth of 7.7% year-over-year.
First off, Verizon's adjusted EPS (non-GAAP) of $0.52 for its consolidated operations is only a penny less than the estimate that Businessweek's poll of analysts came up with. But that EPS number is an adjustment upward to account for a $0.71-per-share loss the company took for non-cash pension items – that's a serious impact.
Breaking Verizon's earnings down into its two main segments, wireless and wireline, will give us a better picture of the quarter.
Total operating revenues for Verizon Wireless for the quarter were $18.25 billion, an increase of 13% over the same quarter last year. That was helped by the net gain of 1.5 million retail subscribers, of which 1.2 million are the coveted postpaid (on contract) customer.
But in spite of those gains, operating income was down almost 11% over that same period. Some of this can be attributed to the substantial amount of the iPhone's cost that Verizon – as well as AT&T (NYSE: T ) and Sprint Nextel (NYSE: S ) -- have to write off as a subsidy to lure iPhone-craving subscribers. The paradox here is that the more iPhones they sell, the thinner their operating margins becomem.
One thing to remember about the Verizon Wireless segment of Verizon is that it is a joint venture between Verizon and Vodafone (NYSE: VOD ) , with Verizon owning 55%. Verizon Wireless has generated enough cash that will payout a $10 billion dividend (split 55/45) this month to its parent companies.
Verizon managed to slow down its rate of losing fixed-line phone customers, but it's a growing problem area for all wireline providers as mobile phone users drop their home phone service. Although the company was able to post a net increase in FiOS Internet and Video subscribers, total wireline operating revenues were down 1.5% over the same quarter last year, and down 1.3% year-over-year.
Even though Verizon disappointed the analysts, and in spite of its iPhone subsidy costs and wireline weakness, Verizon Wireless is still far ahead of all other wireless providers in 4G LTE coverage. It was also able to increase its wireless spectrum holdings, unlike rival AT&T, which got itself stuck in a nine-month long regulatory quagmire in its quest to annex T-Mobile.
And don't forget Verizon's $0.50-per-share quarterly dividend (a projected 5.2% yield), which it is still in a strong position to pay with a free cash flow to dividend payout ratio of 41% for the year.
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