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Amid the broad rally, the telecom sector has been underperforming with the S&P Telecom Select Industry Index, losing a modest 0.02% over the past three months. This is compared to the gain of 10.6% for the S&P 500 Index. Even the earnings reports from two powerhouse – Verizon Communications and AT&T failed to boost the sector. Both companies came up with mixed earnings results, beating on top line and missing on revenues.
This has put telecom ETFs like – iShares U.S. Telecommunications ETF (IYZ - Free Report) , Vanguard Communication Services ETF (VOX - Free Report) , Fidelity MSCI Communication Services Index ETF (FCOM - Free Report) and Communication Services Select Sector SPDR Fund (XLC - Free Report) – in focus.
Below, we highlight Q2 earnings results from these companies.
Earnings in Detail
Verizon Communications
On Jul 25, Verizon Communications (VZ - Free Report) reported second-quarter 2023 earnings of $4,766 million or $1.10 per share, on a GAAP basis. Net income for the quarter decreased from $5,315 million or $1.24 per share in the prior-year quarter, due to a decline in overall revenues. Excluding non-recurring items, quarterly adjusted earnings per share were $1.21 compared with $1.31 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 4 cents.
Quarterly total operating revenues decreased to $32,596 million from $33,789 million in the prior year, and missed the consensus estimate of $33,390 million. Lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades resulted in a decrease in top line.
The telecom giant has reiterated its guidance for 2023 and expects wireless service revenue growth of 2.5-4.5%. Verizon Communications is seeing strong growth in 5G adoption and fixed wireless broadband services. The demand for Fios and fixed wireless products has led to a healthy increase of 418,000 new broadband connections. Additionally, they gained 8,000 postpaid phone subscribers and 612,000 retail postpaid subscribers, which has boosted their shares in pre-market trading.
AT&T
On Jul 26, AT&T (T - Free Report) reported second-quarter 2023 net income of $4,437 million or 61 cents per share compared with $4,105 million or 57 cents per share in the year-ago quarter, mainly because of higher revenue and reduced operating costs. Excluding non-recurring items, adjusted earnings were 63 cents per share compared with 65 cents in the year-earlier quarter and ahead of, the Zacks Consensus Estimate by 3 cents.
Quarterly GAAP operating revenues increased 0.9% year over year to $29,917 million. However, the top line missed the consensus mark of $30,087 million. The increase year over year was largely due to higher Mobility, Mexico and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services.
While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs, while focusing on 5G and fiber-based connectivity along with expanded reach of software-based entertainment platforms.
iShares U.S. Telecommunications ETF seeks to track the Russell 1000 Telecommunications RIC 22.5/45 Capped Index with a basket of 23 securities. The fund has an asset base of $292.39 million and charges an annual fee of 0.39%.
iShares U.S. Telecommunications ETF has an exposure of 4.02% in AT&T and 12.10% in Verizon. The fund has generated 2.09% in the past week (as of Aug 2).
Vanguard Communication Services ETF seeks to track the performance of MSCI US Investable Market Communication Services 25/50 Index with a basket of 119 securities. The fund has amassed an asset base of $3.42 billion and charges an annual fee of 0.10%.
Vanguard Communication Services ETF has an exposure of 3.74% in AT&T and 4.38% in Verizon. The fund has added 2.78% in the past week (as of Aug 2).
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)
Fidelity MSCI Communication Services Index ETF seeks to track the performance of MSCI USA IMI Communication Services 25/50 Index with a basket of 111 securities. The fund has an asset base of $796.58 million and charges an annual fee of 0.08%.
Fidelity MSCI Communication Services Index ETF has an exposure of 3.80% in Verizon and 3.18% in AT&T. The fund has earned 2.92% in the past week (as of Aug 2).
Communication Services Select Sector SPDR Fund (XLC - Free Report)
Communication Services Select Sector SPDR Fund seeks to track the performance of the Communication Services Select Sector Index with a basket of 25 securities. The fund has an asset base of $14.55 billion and charges an annual fee of 0.10%.
Communication Services Select Sector SPDR has an exposure of 3.98% in Verizon and 3.77% in AT&T. The fund has earned 2.67% in the past week (as of Aug 2).
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How Will Telecom ETFs React to Mixed Q2 Earnings?
Amid the broad rally, the telecom sector has been underperforming with the S&P Telecom Select Industry Index, losing a modest 0.02% over the past three months. This is compared to the gain of 10.6% for the S&P 500 Index. Even the earnings reports from two powerhouse – Verizon Communications and AT&T failed to boost the sector. Both companies came up with mixed earnings results, beating on top line and missing on revenues.
This has put telecom ETFs like – iShares U.S. Telecommunications ETF (IYZ - Free Report) , Vanguard Communication Services ETF (VOX - Free Report) , Fidelity MSCI Communication Services Index ETF (FCOM - Free Report) and Communication Services Select Sector SPDR Fund (XLC - Free Report) – in focus.
Below, we highlight Q2 earnings results from these companies.
Earnings in Detail
Verizon Communications
On Jul 25, Verizon Communications (VZ - Free Report) reported second-quarter 2023 earnings of $4,766 million or $1.10 per share, on a GAAP basis. Net income for the quarter decreased from $5,315 million or $1.24 per share in the prior-year quarter, due to a decline in overall revenues. Excluding non-recurring items, quarterly adjusted earnings per share were $1.21 compared with $1.31 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 4 cents.
Quarterly total operating revenues decreased to $32,596 million from $33,789 million in the prior year, and missed the consensus estimate of $33,390 million. Lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades resulted in a decrease in top line.
The telecom giant has reiterated its guidance for 2023 and expects wireless service revenue growth of 2.5-4.5%. Verizon Communications is seeing strong growth in 5G adoption and fixed wireless broadband services. The demand for Fios and fixed wireless products has led to a healthy increase of 418,000 new broadband connections. Additionally, they gained 8,000 postpaid phone subscribers and 612,000 retail postpaid subscribers, which has boosted their shares in pre-market trading.
AT&T
On Jul 26, AT&T (T - Free Report) reported second-quarter 2023 net income of $4,437 million or 61 cents per share compared with $4,105 million or 57 cents per share in the year-ago quarter, mainly because of higher revenue and reduced operating costs. Excluding non-recurring items, adjusted earnings were 63 cents per share compared with 65 cents in the year-earlier quarter and ahead of, the Zacks Consensus Estimate by 3 cents.
Quarterly GAAP operating revenues increased 0.9% year over year to $29,917 million. However, the top line missed the consensus mark of $30,087 million. The increase year over year was largely due to higher Mobility, Mexico and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services.
While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs, while focusing on 5G and fiber-based connectivity along with expanded reach of software-based entertainment platforms.
ETFs in Focus
iShares U.S. Telecommunications ETF (IYZ - Free Report)
iShares U.S. Telecommunications ETF seeks to track the Russell 1000 Telecommunications RIC 22.5/45 Capped Index with a basket of 23 securities. The fund has an asset base of $292.39 million and charges an annual fee of 0.39%.
iShares U.S. Telecommunications ETF has an exposure of 4.02% in AT&T and 12.10% in Verizon. The fund has generated 2.09% in the past week (as of Aug 2).
Vanguard Communication Services ETF (VOX - Free Report)
Vanguard Communication Services ETF seeks to track the performance of MSCI US Investable Market Communication Services 25/50 Index with a basket of 119 securities. The fund has amassed an asset base of $3.42 billion and charges an annual fee of 0.10%.
Vanguard Communication Services ETF has an exposure of 3.74% in AT&T and 4.38% in Verizon. The fund has added 2.78% in the past week (as of Aug 2).
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)
Fidelity MSCI Communication Services Index ETF seeks to track the performance of MSCI USA IMI Communication Services 25/50 Index with a basket of 111 securities. The fund has an asset base of $796.58 million and charges an annual fee of 0.08%.
Fidelity MSCI Communication Services Index ETF has an exposure of 3.80% in Verizon and 3.18% in AT&T. The fund has earned 2.92% in the past week (as of Aug 2).
Communication Services Select Sector SPDR Fund (XLC - Free Report)
Communication Services Select Sector SPDR Fund seeks to track the performance of the Communication Services Select Sector Index with a basket of 25 securities. The fund has an asset base of $14.55 billion and charges an annual fee of 0.10%.
Communication Services Select Sector SPDR has an exposure of 3.98% in Verizon and 3.77% in AT&T. The fund has earned 2.67% in the past week (as of Aug 2).