Verizon's Q3 Earnings Got A Nice Boost From iPhone Sales

empty verizon store near penn station iphone 5 line

Photo: Kirsten Acuna, Business Insider

(Updates with profitability starting in first paragraph.)Oct. 18 (Bloomberg) — Verizon Communications Inc., the second-largest U.S. phone company, reported an increase in profitability at its wireless unit that topped analyst estimates as sales of Apple Inc.’s iPhone boosted customers’ bills.

The profit margin in the Verizon Wireless business, based on earnings before interest, taxes, depreciation and amortization, rose to 50 per cent in the third-quarter from 49 per cent in the previous quarter, the New York-based company said today in a statement. The average estimate of eight analysts compiled by Bloomberg was for 48.4 per cent.

Verizon Wireless, 45 per cent owned by Vodafone Group Plc, added 1.54 million net contract customers in the quarter, beating the 901,000 estimate of analysts. More smartphone users watching videos or streaming music and enrollment in shared data plans meant bigger phone bills and a 6.5 per cent increase in the price for the average monthly contract account to $145.42. The increase in wireless helped offset slumping sales to business customers.

“‘This is a stellar set of Verizon Wireless results,” John Karidis, an analyst at Oriel Securities Ltd., said in an interview. ”I would expect Vodafone to do better because of that.”

More Customers
Vodafone, the second-biggest mobile-phone company, rose as much as 1.9 per cent in London trading and was up 1.7 per cent as of 10:24 a.m. Verizon yesterday rose 1.5 per cent to $44.72 in New York. The shares have climbed 11 per cent this year.

Verizon’s third-quarter per-share earnings excluding some items were 64 cents, compared with 56 cents a year earlier. Third-quarter sales climbed 3.9 per cent to $29 billion. Profit and sales were in line with analysts estimates.

Last month, Apple released the iPhone 5. The company sold 5 million of the smartphones during its debut weekend, though sales have been held back by supply constraints. Verizon Wireless sold 6.8 million smartphones in the third quarter, boosting the proportion of retail contract phone connections to 53 per cent from 39 per cent a year earlier.

”They really jacked up their advertising in the past few months,” said Colby Synesael, an analyst at Cowen & Co. in New York. ”Verizon has been very aggressive with marketing and it helped with sales.”

Wireless Users
Since the June introduction of the Share Everything plan that allows users to share one data allocation with as many as 10 devices, Verizon has been trying to capitalise on heavier data users. As part of the switch, Verizon has started reporting average revenue per account instead of average revenue per user, or ARPU.

Verizon Wireless also began to extract more money from renewing customers. Starting April 22, it imposed a $30 upgrade fee on all customers buying new smartphones. AT&T Inc., its biggest rival, charges $36 for upgrades, and Sprint Nextel Corp. has an $18 fee plus an additional $10 monthly smartphone charge.

Total revenue for the land-line business was $9.9 billion, down 2.3 per cent from a year ago.

Capital spending in the first nine months was $11.3 billion, compared with $12.5 billion in the year-earlier period. Chief Financial Officer Fran Shammo last month told investors that total capital spending this year will be ”slightly down’ from the $16.2 billion level in 2011.

Pension Obligations
Verizon Chief Executive Officer Lowell McAdam said today the company remains on track to meet its full-year financial targets.

Verizon yesterday said it’s transferring about $7.5 billion in pension obligations, or one-fourth of the total, to Prudential Financial Inc. in a drive to remove risk from its balance sheet. Prudential, the second-largest U.S. life insurer, will take on responsibility for making future annuity payments to certain management retirees of the phone company. Verizon is using the agreement to lower risks related to pensions while improving its financial profile. It follows General Motors Co. in paying Prudential to assume the risk that market returns are inadequate or that beneficiaries live longer than expected. Transferring obligations can reduce swings in earnings tied to securities and relieve companies of the need to manage large pools of money.

–Editors: Simon Thiel, Kenneth Wong

To contact the reporters on this story: Scott Moritz in New York at [email protected]; Cornelius Rahn in Frankfurt at [email protected]

To contact the editor responsible for this story: Kenneth Wong at [email protected]

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