Verizon Misses Profit Estimates as Price Pressure Takes Toll

Verizon Communications Inc. (VZ), the largest U.S. wireless carrier, missed analysts’ fourth-quarter profit estimates as a surge in sales of deeply discounted phones squeezed margins. Earnings, excluding some items, of 71 cents a share fell short of analysts’ average projection of 72 cents. Wireless profit margins narrowed to 42 percent, the New York-based company said in a statement. That was worse than the 44.1 percent estimated on average by seven analysts surveyed by Bloomberg. Below-cost prices on popular phones like Apple Inc.’s latest iPhones helped lure customers into two-year contracts. Those discounts, along with promotions for free tablets and holiday discounts, helped Verizon fend off competition from the likes of Sprint Corp., which offered to cut Verizon customers’ bills in half. Verizon warned last month that the moves would reduce fourth-quarter margins. “Expectations had been set pretty low,” Dave Heger, an analyst with Edward Jones & Co. who recommends buying Verizon shares, said before the earnings announcement. “A miss will raise questions about the longevity of the price war and the ongoing lowering of margins in wireless.” The shares fell 0.9 percent to $47.80 at the close in New York. The stock dropped 4.8 percent last year. Photographer: Andrew Harrer/Bloomberg The Verizon Wireless logo is displayed on a window at a retail store in Washington,... Read More The company’s wireless profit margin shrank from 49.5 percent in the third quarter and 47 percent a year ago. More Subscribers The lower margins show how expensive it was for Verizon to drive subscriber growth in the quarter. The industry has been trading short-term profitability in order to lock in more customers who will be paying them for years. Verizon added about 2 million new monthly subscribers, beating the average estimate of 1.7 million, based on a Bloomberg survey of seven analysts. The majority of the additions were driven by 1.4 million new tablet customers. The company only added 672,000 net phone customers. Analysts’ average estimates called for twice as many tablets as phones, with 1.2 million tablet users and 500,000 phone customers. Signing up more subscribers helped Verizon forecast 2015 revenue growth that exceeded analysts’ estimates. The company projected growth of at least 4 percent, which would amount to about $132 billion. Analysts were predicting sales this year of $129.8 billion, or about 2.1 percent growth. For the fourth quarter, Verizon reported a net loss of about $2.2 billion, or 54 cents a share, which includes year-end charges for pension adjustments, employee benefits and severance costs. Sales rose to $33.2 billion, while analysts had estimated $32.7 billion on average, according to data compiled by Bloomberg. On a conference call, Verizon executives said that monetizing non-strategic assets will be a priority this year. Verizon hired advisers to help sell about 12,000 wireless towers, people familiar with the discussions said last year, and the company has also said that certain landline assets could make more sense with other companies. The company needs to raise money as it may be spending as much as $20 billion in the U.S. government’s airwaves auction, according to New Street Research. To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Niamh Ring