Smartphone sales boost Verizon Q1 earnings above estimates

Verizon Communications Inc., the second-largest U.S. phone company, posted earnings that beat analysts’ estimates as smartphone demand boosted subscriber count and slowing sales of Apple Inc.’s iPhone helped margins.

First-quarter earnings rose to 59 cents a share from 51 cents a year earlier, New York-based Verizon said today in a statement. Analysts projected 58 cents, the average of estimates compiled by Bloomberg. Sales gained 4.6 percent to $28.2 billion, compared with the $28.1 billion analysts predicted.

Verizon Wireless added 501,000 contract customers, compared with the 497,285 average estimate of eight analysts surveyed by Bloomberg. New sales of the iPhone, which Verizon and rivals such as AT&T Inc. sell at a loss to attract subscribers, probably fell from the fourth quarter’s 4.3 million, said Joe Bonner, an analyst at Argus Research Corp.

“Margins improved as the iPhone sales tailed off,” Bonner said before the report. “This might be good news for the rest of the sector, especially AT&T.”

Verizon Wireless, the largest U.S. wireless carrier, is gaining users even as the market nears saturation. Wireless penetration in the U.S. is 105 percent when including mobile devices like tablet computers, said Bob Roche, a statistician with CTIA, a wireless industry trade group.

First-quarter net income rose 17 percent to $1.69 billion from $1.44 billion a year earlier.

Verizon, which co-owns its wireless business with Vodafone Group Plc, retreated 0.2 percent to $37.66 yesterday. The stock has declined 6.1 percent this year.

IPhone Sales

The slowing market is forcing Verizon Wireless into more intense competition with AT&T Inc. and Sprint Nextel Corp., with the carriers trying to attract customers with price promotions, faster network speeds and device such as the iPhone.

New sales of the Apple device hurt carriers’ profit margins initially, because they sell the phone at a loss to lure subscribers into two-year contracts. Users of iPhone and other smartphones are lucrative because they spend more each month browsing the Web, sending e-mail and watching video.

Carriers are trying to fuel the use of such services, as the stagnating market forces them to try to squeeze more revenue out of existing subscribers. Average monthly revenue from contract customers at Verizon Wireless increased to $55.43. Analysts projected $54.41, the average of six estimates compiled by Bloomberg.