Verizon Communications (NYSE:VZ) reported third-quarter results before the market open this morning. The largest U.S. wireless carrier's revenue and earnings came in above Wall Street's expectations, and shares were up about 2% on the news as of 12:30 p.m. ET.
Verizon added 1.3 million new monthly wireless subscribers in the third quarter, which topped analyst expectations of only 1.1 million, according to Bloomberg. In addition, Verizon continues to show signs of strong customer loyalty, with its retail postpaid churn rate remaining low at 0.93%, a 7-basis point improvement from the year-ago quarter. That's impressive because it shows that Verizon is not only adding new customers, it's also doing an excellent job of keeping its existing customers. Combined, that helped Verizon's total retail connections rise 4.3% to 110.8 million nationwide at the end of the third quarter.
The strong subscriber numbers helped drive a 5.4% year-over-year increase in wireless revenue to $23 billion. Profitability also improved, with operating margin rising to 33.3% from 31.9% in the third quarter of 2014 and segment EBITDA (earnings before interest, taxes, depreciation, and amortization) margin increasing to 43.2% from 41.6%.
In Verizon's wireline division, FiOS remains a bright spot. Verizon added 114,000 net new FiOS Internet connections and 42,000 net new FiOS Video connections in Q3. That helped bring Verizon's totals to 6.9 million FiOS Internet and 5.8 million FiOS Video connections at the end of the third quarter, representing year-over-year increases of 7.2% and 5%, respectively. Together, that drove a 7.5% rise in FiOS revenue compared to the year-ago quarter.
Profitability also improved in Verizon's wireline division in Q3, with operating margin increasing to 6.2% from 2.3% in the third quarter of 2014 and segment EBITDA margin rising to 23.5% from 23%. Still, as the world continues to shift toward more mobile-based communications, Verizon's wireline operations remain a declining business, with total operating revenues declining 2.3% to $9.4 billion.
All told, Verizon's total operating revenue rose 5% to $33.16 billion in the third quarter. That was slightly above the $32.98 billion Wall Street expected. Earnings per share, adjusted for pension-related and other non-recurring charges, also came in ahead of expectations, increasing 17% to $1.04. That was above the $1.02 analysts projected.
More importantly, Verizon remains a cash-flow-generating machine. Even after adjusting for a non-reoccurring $2.4 billion gain related to the monetization of tower assets in the first quarter, operating cash flow increased to $26 billion in the first nine months of 2015, up from $23.2 billion during the same period of 2014. And adjusted free cash flow (excluding the tower sale) totaled $13.5 billion during the first three quarters of 2015, up from $10.5 billion in the year-ago period.
Looking ahead, management reiterated its expectations for consolidated revenue growth of at least 3% for full-year 2015. Management also still projects full-year 2015 capital expenditures to range between $17.5 billion and $18.0 billion.
"Verizon continues to grow earnings by delivering network reliability and superior value that continues to attract new customers," said Chairman and CEO Lowell McAdam in a press release. "Verizon Wireless posted another quarter of quality connections growth -- even better than in the second quarter -- while maintaining high customer loyalty and profitability. Meanwhile, fios customer growth also improved from the previous quarter. We expect future revenue growth from mobile over-the-top video, including digital advertising, and the Internet of Things."
Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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