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Verizon Communications (NYSE:VZ) this morning reported results for the first quarter of 2015. The report beat Wall Street's bottom-line earnings expectations but fell slightly short against revenue estimates, making for a mixed quarter.
First-quarter sales increased 3.8% year over year, landing at $32.0 billion. Earnings rose 21.4% to $1.02 per share, backing out non-operational gains from the company taking full ownership of Verizon Wireless in the year-ago period. Analysts were looking for earnings of roughly $0.95 per share on $32.3 billion in top-line sales.
Verizon's operating cash flows increased 42% to $10.2 billion, including a $2.4 billion one-time payment from American Tower (NYSE:AMT). Verizon thinks of that tower sale and leaseback deal as a move to monetize its tower infrastructure; American Tower sees it as a growth vehicle and addressable market expansion.
Excluding that payment, Verizon's operating cash flows grew a more modest 9.9% year over year.
The company pointed to its Verizon Edge installment payment plan as a driver of hardware sales. "This pricing makes it easy to buy a new device with a low upfront cost and simple monthly installments," Verizon said, explaining how and why wireless device sales spiked $1.5 billion higher while service revenues remained flat.
At the start of the quarter, 25% of Verizon's new wireless activations took the Edge plan. By the end of the quarter, that ratio had jumped to 39%. Today, just three weeks later, the Edge percentage of new activations "approaches 50%," and Verizon expects this trend to continue.
During the quarter, Verizon added 565,000 net postpaid subscribers for a grand total of 102.6 million retail postpaid connections. The company also manages about 6 million prepaid accounts.
Sales growth for 4G devices and connected tablets more than made up for dwindling business in 3G devices and basic phones. 72% of Verizon's retail postpaid customers now wield a 4G phone or tablet, driving a 54% year-over-year increase in mobile data usage.
Verizon also reported 10.2% growth in FiOS wireline revenues, including a 9.4% boost in FiOS Internet subscribers and 7.9% more FiOS video accounts. These figures include FiOS subscribers in Texas, Florida, and California, who are on their way to becoming Frontier Communications (NASDAQ:FTR) customers. When that agreement closes in the first half of 2016, Verizon will receive $10.5 billion in cash in exchange for losing 27% of its FiOS video and Internet subscribers.
"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," said Verizon Chairman and CEO Lowell McAdam, summarizing a complicated quarter.