Back to top

Image: Bigstock

Verizon (VZ) Down 1.7% Since Earnings Report: Can It Rebound?

Read MoreHide Full Article

It has been about a month since the last earnings report for Verizon Communications Inc. (VZ - Free Report) . Shares have lost about 1.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is VZ due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Verizon Beats Q1 Earnings on Solid Wireless Business

Verizon started 2018 on a positive note with a relatively healthy performance in the first quarter, primarily led by the wireless business. The bottom line also benefited from significant savings from the tax reform.

Quarter Details

GAAP earnings for the reported quarter were $4,666 million or $1.11 per share compared with $3,553 million or 84 cents per share in the year-ago quarter. Excluding non-recurring items, adjusted earnings were $1.17 per share compared with 95 cents in the year-earlier quarter and comfortably exceeded the Zacks Consensus Estimate of $1.11.

Consolidated GAAP revenues increased 6.6% year over year to $31,772 million on the back of a solid performance in the wireless business. Excluding revenues from divested businesses, non-GAAP consolidated revenues were $29.9 billion, which missed the Zacks Consensus Estimate of $31,157 million.

Operating income improved 5.6% year over year to $7,349 million. EBITDA for the reported quarter were $11.7 billion, resulting in EBITDA margin of 36.7%.

Segment Performance: Wireless

Total revenues from this segment were $21,900 million, up 4.9% year over year. While service revenues declined 2.4% to $15,402 million, that from equipment increased 33.9% to $5,040 million. Other revenues totaled $1,458 million, up 9.1% year over year.

Operating income improved 13.8% to $8,049 million due to higher retail postpaid connections. Quarterly operating income margin was 36.8% compared with 33.9% in the year-ago quarter. Segment EBITDA increased 11.3% to $10,477 million, resulting in EBITDA margin of 47.8% compared with 45.1% in the prior-year quarter.

Verizon reported a net increase of 260,000 retail postpaid connections in first-quarter 2018. Quarterly retail postpaid churn rate improved to 1.04% compared with 1.15% in the year-ago quarter. Retail postpaid ARPA (average revenue per account) was $131.71 compared with $136.98 in the year-ago quarter.

Wireline Segment

Total revenues in the segment were $7,557 million, down 1.6% year over year owing to lower Consumer retail revenues (down 1.6% to $3,150 million) and Enterprise Solutions (down 3.1% to $2,240 million). Partner Solutions revenues also decreased 0.1% to $1,228 million, while Business Markets revenues declined 0.9% to $871 million. Other revenues improved 9.7% to $68 million.

Quarterly operating income was $69 million, down 66.5% year over year. Quarterly operating margin was 0.9% compared with 2.7% in the year-ago quarter. Segment EBITDA fell 4.6% to $1,603 million, resulting in EBITDA margin of 21.2% compared with 21.9% in the year-ago quarter.

Cash Flow and Liquidity

Verizon generated $6,648 million of cash from operating activities for the first three months of 2018 compared with $1,376 million in the year-ago quarter. At the end of the reported quarter, Verizon had $1,923 million of cash and cash equivalents and $112,734 million in long-term debts.

In order to strengthen its balance sheet and provide financial flexibility, Verizon made a discretionary contribution of $1.0 billion to improve the funded status of its pension plans. Consequently, Verizon anticipate having zero mandatory pension contributions until approximately 2026.

Outlook for 2018  

For full-year 2018, Verizon expects both GAAP revenues and adjusted earnings per share to increase by low single-digit percentage rates driven by expected savings from tax reform and higher cash flow from operations. Capital expenditures for 2018 are likely to be in the range of $17.0 billion to $17.8 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions higher for the current quarter compared to seven lower.

Verizon Communications Inc. Price and Consensus

 

VGM Scores

At this time, VZ has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, VZ has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Verizon Communications Inc. (VZ) - free report >>

Published in