Sandy, Pension Charges Bite Into Verizon Q4 Results

Telco Adds 134K TV and 144K FiOS Internet Subs, Drops 117K DSL Lines

Verizon Communications’ fourth quarter 2012 earnings were hurt by $319 million in costs related to Superstorm Sandy -- as well as pension, benefit and debt-retirement charges -- while the telco still managed to add 144,000 net new FiOS Internet and 134,000 net new FiOS TV subscribers.

As of Dec. 31, Verizon had a total of 5.42 million FiOS Internet and 4.73 million FiOS TV connections representing year-over-year increases of 12.6% and 13.3%, respectively.

Verizon lost 117,000 DSL connections in the quarter to stand at 3.37 million at the end of the year. Broadband connections totaled 8.8 million at year-end 2012, a 1.4% year-over-year increase, with broadband revenue growing 3.1%, to $3.5 billion for full-year 2012, driven by FiOS services.

The company's wireline results "held few surprises, but generally was not as bad as we or consensus had feared," Sanford Bernstein senior analyst Craig Moffett wrote in a research note. "FiOS metrics were predictably light due to Sandy (as pre-announced)," he wrote, adding that Verizon's total wireline revenue decline of 1.5% year over year was also "a little better than expected."

Verizon noted that FiOS customer additions were higher in the fourth quarter than in the prior two quarters, although they were below net adds in Q4 2011 (194,000 for TV and 201,000 for FiOS Internet).

Meanwhile, Verizon Wireless touted record-setting 2.2 million net retail customer additions in the quarter, including 2.1 million retail postpaid net connections. At the end of 2012, the company had 98.2 million retail connections, up 6.6% year over year, including 92.5 million retail postpaid connections.

Verizon Wireless’ 4G LTE mobile broadband network, as of Jan. 22, is available to more than 273 million people, nearly 89% of the U.S. population, in 476 markets.

Over all, for the fourth quarter of 2012 Verizon reported revenue of $30.05 billion (up 5.7%) and a net loss of $4.23 billion (versus a net loss of $2.02 billion the year-earlier period).

Fourth-quarter 2012 charges totaled $1.86 per share: $1.55 per share related to severance, pension and benefit charges primarily for the annual actuarial valuation of Verizon's benefit plans as well as the annuitization of various pension liabilities during the quarter, and 31 cents per share related to the early retirement of debt and other restructuring activities. For the fourth quarter, spending related to Sandy reduced earnings by $319 million (7 cents per share).

Capital expenditures were $16.2 billion in 2012, including $135 million in companywide capital related to Superstorm Sandy recovery efforts, and totaled about $70 million less than in 2011.

Even without hurricane-related spending, Moffett wrote, "capex came in far above expectations. And with higher capex came (much) lower free cash flow." Moffett's expectation for proportionate free cash flow had been for "already-seasonally-low $802 million, or $0.28 per share. Actual proportional free cash flow came in at just $18 million, or $0.01 per share."

Verizon said average revenue per unit for FiOS continues to be more than $150. FiOS services produced about 68% of consumer wireline revenues in Q4. FiOS Internet penetration was 37.3% at the end of 2012 (versus 35.5% a year prior) and FiOS TV penetration was 33.3% (versus 31.5%). The FiOS network passed 17.6 million premises at year-end 2012.

Legacy landlines continued to decline: The telco lost 1.63 million voice lines in 2012, including 344,000 in the fourth quarter, to stand at 22.5 million total voice connections at the end of December.

In 2012, Verizon migrated 223,000 homes from copper-based lines to fiber. That contributed to an 11% improvement in trouble reports across Verizon's entire copper network for the year, according to the telco. The company said it is targeting 300,000 additional homes for copper-to-fiber migrations within FiOS markets in 2013.

In addition, Verizon deployed additional 100 Gigabit per second links on network routes in the U.S. and Europe in the fourth quarter. In the U.S., the 100G routes included Atlanta to Tampa, Fla.; Kansas City to Dallas; and Salt Lake City to Seattle. During 2012, the company added 13,000 miles to its 100G network in the U.S.

Verizon had 183,400 total employees as of the end of 2012, down 5.4% from 193,900 a year earlier.