Verizon (VZ) posted a solid Q2, missing Wall Street’s sales prediction by a hair but edging out the Street’s profit expectation. Wireless led growth, while Verizon’s home phone business continued to shrink.
No gloomy economic talk on the earnings call: COO Denny Strigl said the company does not expect “significant economic impact” on its financial results in the second half. Executives expect revenues to grow in the “solid” mid-single-digits in the second half, for margins to expand, and for earnings to grow in the double-digits.
Verizon’s wireless business, a joint venture with Vodafone (VOD), once again led growth. Wireless revenues jumped 12% year-over-year to $12.1 billion, and wireless data revenues — sales of services like text messaging, wireless Internet access, etc. — jumped 45.3%. As preannounced last week, the company added 1.5 million net new wireless subscribers during Q2, more than larger rival AT&T (T), which added 1.3 million. Those fortunes could easily reverse this quarter now that AT&T is selling the new Apple (AAPL) iPhone 3G, whose demand is still beating its supply.
Meanwhile, mixed news for Verizon’s wireline business. Verizon’s number of residential access lines in service continued their decline, down 11.4% year-over-year to 22.4 million. That’s a faster rate of decline than during Q1, when residential access lines shrunk 10.9%.
Verizon signed up just 54,000 net new broadband subscribers during the quarter, including a net loss of 133,000 DSL subscribers. But that was offset by new subscribership to its super-fast FiOS network: Verizon signed up 187,000 net new FiOS Internet subscribers during Q2 and 176,000 net new FiOS TV subscribers, for a total 2 million FiOS Internet subs and 1.4 million FiOS TV subs. One less-than-encouaging stat: FiOS TV net subscriber additions were down 33% from Q1 (263,000) and up just 5% year-over-year (167,000).
Revenue: $24.1 billion vs. $24.2 billion consensus
EPS: $0.67 adjusted, $0.66 diluted vs. $0.65 consensus
LIVE Conference Call Notes:
8:34 Joining in progress…
8:35 Going through trends and stats from presentation. (PDF here.)
8:36 17.6% capex to revenue, better than a year ago.
8:38 Only about 4% of wireless customers are prepaid. Churn down to 0.83%. Wireless data now 24% of wireless revenue. About 60% of this growth is from non-messaging service like email and laptop cards. Next year growth in push-to-talk, rural cellular through m&a. Also coming soon: Some sort of “unprecedented” convergence between FiOS and VZ Wireless.
8:42 “Nothing new here” with access line losses. FiOS launching in NYC today. Already passed around 25% of NYC; goal is to pass 57% of Manhattan by year-end, 97% in Staten Island. 100 hi-def channels in NYC.
8:45 Access line losses no big deal; blames on seasonal decline.
8:49 Many cost reduction opportunities, like IT, marketing, network simplification, energy savings, etc.
8:51 Will be below $17.5 billion capex. Will continue investing for growth, comfortable requesting a dividend increase.
8:51 Q&A begins. Why FiOS video net adds so low? Denny Strigl: FiOS net adds in Q2 were actually above expectations coming off first quarter. Expect Q3 net adds to increase and sales even in early June are trending higher. Oppty to increase net adds with NYC launch, which occurred this morning. Doreen: Expect margins to continue to improve.
8:54 Any key factors to deliver margin expansion? Have not changed our margin targets. Long-term goal of 30-33% is very achievable. Should be on run rate of at least 28% this year. Consumer business: What seeing in terms of where incremental line loss is going? Wireless? Cable/VoIP? Half of line loss going to wireless. Focusing on growing FiOS areas out; as we do, we have great success in competing with cable companies.
8:57 Why wireless ARPU light? Total ARPU up 48 cents y/y, 62 cents from Q1. Data arpu up $3 y/y and 86 cents sequentially. Nine consecutive quarters of y/y arpu growth. Focused on postpaid business; good wins in business market this quarter. When that occurs, see somewhat lower ARPU initially; more data upside on those business accounts. Helps drive churn levels even lower. I would ask to think in broader terms, ARPU being just one measure. What kind of costs could be incurred if union talks go south? Not appropriate to comment; salary and wage, overhead, countless other things. Optimistic that we’ll reach a fair settlement; key issues really haven’t changed. Really would like you to know that our workforce has been very excited about our video opportunities, especially in NYC. Plenty of work for existing workforce, new jobs.
9:02 I see PTT as just another part of broad product line. Improved from a few years ago.
9:03 Overall at iPhone launch: As we saw with initial introduction of iPhone, we are seeing what we think is the same… minimal, short term impact. Disproportionately less than our relative market share. Has continued be well positioned. Small-biz: Some revenue hit from bundles. Enterprise: Nothing new to report. Some forced downsizing, office closures, decision delays, enterprise sales still strong, no significant net effect on financial results. Enterprise has been resilient.
9:09 Why has enterprise been so resilient? Better global mix and product mix — not just phone line to desk getting shut off; huge pipes going into companies, which they cut up themselves. Security product from Cybertrust acquisition has done very well internationally.
9:13 FiOS costs coming down… just about on target. Strigl: Comfortable despite what others are saying about economy. Do not expect any significant economic impact on financial results in second half despite some softening in some markets. Solid mid single digit revenue growth, double digit earnings growth.
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