Verizon Q4: Expected post-Sandy loss on deck

Hurricane Sandy caused "significant disruption" for Verizon's fourth quarter, which reported revenue of $30 billion during the October-December months.
Written by Zack Whittaker, Contributor

Despite the holiday season where sales are typically up and the networks are selling smartphones like hotcakes, the fourth quarter saw one of the most devastating storms to have hit the East Coast of the United States in living memory.

(Credit: Verizon)

Hurricane Sandy cost the cellular giants into the high millions of dollars as a result of the damage to infrastructure. The networks knew it too, and warned in regulatory filings late last year to expect post-Sandy losses.

The company reported a fourth-quarter loss of $1.48 cents per share on revenue of $30.0 billion, up 5.7 percent from a year ago. On an adjusted basis, Verizon earned 38 cents per share, compared to 52 per share on the same quarter a year ago.

Losses for the quarter totaled $4.22 billion.

A 7 cents a share impact due to Hurricane Sandy yielded a 38 cents in non-GAAP earnings per share, compared to 52 cents in adjusted earnings per share on the same quarter a year ago. The other nugget was that Verizon was hit by non-cash pension items, additional non-operational debt retirement, and other restructuring items during the fourth quarter that cost the firm 31 cents per share.

All in all, Sandy was bad, but the pension and retirement costs hit the company harder.

Analysts were expecting Verizon to report non-GAAP fourth-quarter earnings of 52 cents per share on revenue of $29.75 billion.

Verizon said that it added 2.2 million retail subscribers, with 2.1 million of that figure post-paid on cell contracts. Retail post-paid churn was 0.95 percent, up slightly from the third quarter. Deutsche Bank analysts were expecting Verizon to see both net and gross adds in Verizon's post-pay business.

In all, Verizon has 92.5 million retail post-paid connections after the company saw 5 million retail post-paid net adds in 2012. Verizon said this is the most added in four years.

(Credit: Verizon)

In 4G long-term evolution (LTE) news, the next-generation mobile broadband network is now available to more than 273 million people in 476 markets around the US, the company said.

(Credit: Verizon)

By the numbers:

  • 9.8 million smartphones activated during the fourth quarter

  • 87 percent were post-paid smartphones; 30 percent were new activations

  • 70 percent of tablet connections are post-paid

  • Retail prepaid revenue up by 30.2 percent year on year

  • 7.3 million 4G LTE devices sold during the quarter

  • Almost 50 percent of the company's traffic is 4G LTE traffic

  • Q4 revenue growth increased across all of the company's strategic areas, including wireless, FiOS service, and enterprise.

Verizon also said that its fiber FiOS service, despite suffering damage during Sandy, now raked in 68 percent of consumer revenue. Verizon has 5.4 million FiOS subscribers, with 144,000 net adds year on year, and a market penetration rate of 37 percent.

(Credit: Verizon)

Morgan Stanley analysts noted that the strike and aftermath of Hurricane Sandy during October hit the company hard, particularly in the wireline (landline) business:

In wireline, this quarter will be heavily impacted by Super Storm Sandy, which hit Verizon harder than others given their presence in the Northeast. We see stable wireline margins of 21.9 percent (up from 21.7 percent in 3Q12) and revenues declining by 2.0 percent as the storm as well as fiscal cliff uncertainty likely impacted both consumer and business customers.

It comes as no surprise, as the firm said in an 8-K regulatory filing with the US Securities and Exchange Commission that its fourth-quarter earnings might be dingedas a result of sandy.

The FCC also said during the aftermath of the storm that 25 percent of the country's cell masts were knocked down by Sandy, mostly on the East Coast.

Looking ahead, Verizon said the firm will sustain top-line revenue growth and improve the company's cost structure, meanwhile expanding margins and driving earnings growth, and will enhance return on invested capital.

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