Verizon Communications Inc on Tuesday posted a weaker-than-expected wireless operating profit margin due to hefty costs from the sale of smartphones like Apple's iPhone, but the U.S. telecommunications group promised the number would improve this year.
While the company's bottom line was weaker than anticipated, investors were encouraged when Chief Financial Officer Fran Shammo said the company could be in a position to buy back shares sooner than expected and that wireless margins could rise this year to as high as 50 percent.
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"Guidance appears strong for 2013," Stifel Nicolaus analyst Christopher King Said.
Verizon Wireless, its mobile venture with Vodafone Group Plc, posted a fourth-quarter service profit margin of 41.4 percent based on earnings before interest, taxes, depreciation and amortization, compared with analyst hopes for 42 percent.
The lower fourth-quarter margin was due to higher-than-expected subsidies paid to smartphone makers such as Apple Inc so Verizon Wireless could offer a phone discount to customers who sign a long-term contract.
Shammo also hinted that Verizon may not have to wait until the end of 2013 to buy back shares as he had previously indicated, due to strength of its balance sheet.
"We could do share buybacks at any point in time right now," he told analysts without giving a specific time frame.
While Shammo was bullish about the wireless business and Verizon's FiOS home Internet and television services, he did warn that the company's enterprise customers are holding off spending because of uncertainty over issues such as tax reform and global economic weakness.
The company's fourth-quarter net loss widened to $4.23 billion, or $1.48 per share, from a loss of $2.02 billion, or 71 cents per share in the year-ago quarter.
Excluding unusual items such as the charge from superstorm Sandy and its pension liabilities, it would have earned 38 cents per share, well below Wall Street expectations of 50 cents per share, according to Thomson Reuters I/B/E/S.
Operating revenue rose 4.5 percent to $30.05 billion, compared with expectations of $29.83 billion, according to Thomson Reuters I/B/E/S.
Capital spending for the year was $16.2 billion, including $135 million related to Sandy recovery efforts, and was in line with 2011 spending.
Verizon posted results ahead of its biggest rivals AT&T Inc, which reports on January 24 and Sprint Nextel Corp, which is due to report February 7.
Verizon shares gained 30 cents to $42.84 in morning trading on the New York Stock Exchange.
(Additional reporting by Sayantani Ghosh in Bangalore; Editing by Jeffrey Benkoe and Maureen Bavdek)