Wireless and FiOS Gains Boost Verizon Communications Inc. Earnings

Verizon Communications (VZ -0.68%) reported fourth-quarter results on Jan. 21. The largest U.S. cell phone carrier enjoyed strong customer growth that drove its revenue and profits higher despite fierce competition.

Verizon Communications: The raw numbers 

Data source: Verizon Communications Q4 2015 earnings press release.

Wireless results
Verizon added 1.5 million new monthly wireless subscribers in the fourth quarter. The company also continued to show signs of strong customer loyalty, with its retail postpaid churn rate improving 18 basis points from the year-ago quarter to 0.96%.

That's particularly noteworthy because it comes at a time when Verizon is facing stiff competition from rival telecoms such as T-Mobile US (TMUS -0.08%). After recently surpassing Sprint (S) to become the third-largest U.S wireless carrier, T-Mobile has launched an aggressive campaign against No. 1 carrier Verizon. T-Mobile CEO John Legere's tactics have included offering aggressive discounts to lure Verizon customers, lambasting Verizon's somewhat misleading "Better Matters" ad, and openly mocking Verizon's new checkmark logo.

Yet despite these aggressive moves by T-Mobile and others, Verizon's total retail connections still rose 3.6% to 112.1 million at the end of the fourth quarter.

Those subscriber gains helped drive a 1.2% year-over-year increase in Verizon's wireless revenue to $23.7 billion. Profitability also improved, with wireless operating margin rising to 28.6% from 23.5% in the fourth quarter of 2014 and segment EBITDA (earnings before interest, taxes, depreciation, and amortization) margin increasing to 38.4% from 32.6%. 

Wireline results 
In Verizon's wireline division, FiOS remains a bright spot. Verizon added 99,000 net new FiOS Internet connections and 20,000 net new FiOS Video connections in Q4. That helped bring Verizon's totals to 7.0 million FiOS Internet and 5.8 million FiOS Video connections at the end of the fourth quarter, representing increases of 6.3% and 3.2%, respectively, compared to the year-ago quarter. Together, that drove a 6.8% rise in FiOS revenue to $3.5 billion.

Profitability also improved in Verizon's wireline division, with operating margin increasing to 7.3% from 4.4% in the fourth quarter of 2014 and segment EBITDA margin rising to 24.2% from 23.9%. Still, as the world continues to shift toward more mobile-based communications, Verizon's wireline operations remain a declining business, with operating revenue falling 0.9% to $9.5 billion.

Consolidated results 
On a companywide basis, Verizon's total operating revenue rose 3.2% to $34.3 billion in the fourth quarter. Earnings per share, adjusted for pension-related and other non-recurring charges, jumped 25.4% to $0.89.

More importantly, Verizon continues to gush cash. Even after adjusting for a nonrecurring $2.4 billion gain related to the monetization of tower assets, operating cash flow increased to $36.5 billion in 2015, up from $30.6 billion in 2014. And adjusted free cash flow (excluding the tower sale) totaled $18.8 billion, up from $13.4 billion in the year-ago period. 

Looking forward
Management expects to "mitigate 2016 earnings pressures" brought about by the sale of its wireline operations to Frontier Communications (FTR), the continued shift of wireless customers to device payment plans, and the company's investments in nascent businesses such as Verizon's new "go90" mobile-video service and fast-growing Internet of Things initiatives. All told, Verizon projects that 2016 adjusted earnings will "plateau at a level comparable to its strong full-year 2015 adjusted earnings."

"In 2015, Verizon delivered strong and balanced results in a dynamic competitive environment while returning more than $13.5 billion to shareholders," said Chairman and CEO Lowell McAdam. "At the same time, Verizon built and acquired next-generation network capabilities that position the company to be an innovator in the digital-first mobile world in 2016 and beyond."