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Verizon (VZ) Q2 Earnings Beat on Solid Wireless Traction, View Up

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Verizon Communications Inc. (VZ - Free Report) reported strong second-quarter 2021 results with the top and bottom line beating the respective Zacks Consensus Estimate. Backed by a disciplined network strategy for long-term growth along with a focused roadmap for technology leadership, the company witnessed a healthy demand curve across core businesses. Verizon expects to continue this momentum throughout the year driven by customer-centric business model and diligent execution of operational plans and revised its earlier guidance to better reflect the improving business conditions.

Net Income

On a GAAP basis, net income for the June quarter improved to $5,949 million or $1.40 per share from $4,839 million or $1.13 per share in the prior-year quarter buoyed by healthy top-line growth. Excluding non-recurring items, non-GAAP net income for the reported quarter was $1.37 per share, which surpassed the Zacks Consensus Estimate by 7 cents.

Verizon Communications Inc. Price, Consensus and EPS Surprise Verizon Communications Inc. Price, Consensus and EPS Surprise

Verizon Communications Inc. price-consensus-eps-surprise-chart | Verizon Communications Inc. Quote


Total quarterly operating revenues increased 10.9% year over year to $33,764 million with growth across all the business segments. Driven by strength across core business verticals and strong demand for seamless broadband connectivity, Verizon recorded healthy wireless service revenue growth and solid performance within the fiber optic service (Fios) unit. In addition, the company witnessed a steady recovery in wireless equipment revenues and uptick in advertising that fueled a robust Verizon Media performance. The top line beat the consensus estimate of $32,688 million.

Segment Results

Consumer: Total revenues from this segment increased 11.2% year over year to $23,477 million owing to solid wireless equipment revenues due to high activation levels. Service revenues were up 5.1% to $16,709 million while wireless equipment revenues surged 47.7% to $4,739 million due to higher work-from-home-driven customer activities. Other revenues totaled $2,029 million, up 1.2% year over year.

Verizon offered various Mix and Match pricing in both wireless and home broadband plans. With most company-operated retail stores being fully opened and customer activities resuming to pre-pandemic levels, the company witnessed increased adoption of 5G devices and premium unlimited plans. During the quarter, Verizon recorded 350,000 wireless retail postpaid net additions. This comprised 197,000 phone net additions and 234,000 other connected device net additions, partially offset by 81,000 tablet net losses. Total retail postpaid churn was 0.83% while retail postpaid phone churn was 0.65%. The company recorded 92,000 Fios Internet net additions with increasing work-from-home trend. However, Verizon registered 62,000 Fios Video net losses in the quarter, reflecting the ongoing shift from traditional linear video to over-the-top offerings. Nevertheless, solid broadband subscriber growth is likely to drive segment revenues in the near future as the company expanded Fios Forward to support digital inclusion and provide opportunities for underserved households to thrive in the digital world.

Segment operating income improved 6.1% to $7,497 million for operating margin of 31.9%, down from 33.5% in the year-ago quarter. Segment EBITDA increased 4.9% to $10,397 million, reflecting a margin of 44.3% compared with 47% in the prior-year quarter.

Business: Segment revenues were up 3.7% to $7,762 million as Verizon responded effectively to handle increased traffic needs while meeting a surge in demand for connectivity and devices for advanced communications, security and video products from business enterprises. The company recorded 178,000 wireless retail postpaid net additions in the quarter, including 78,000 phone net additions.

The segment’s operating income declined to $856 million from $946 million in the year-ago quarter owing to high operating expenses for respective margins of 11% and 12.6%. Segment EBITDA were down 4.5% to $1,871 million for a margin of 24.1% compared with 26.2% in the year-earlier quarter.

Revenues from Verizon Media were up 49.7% to $2.1 billion driven by strong advertising trends as live sports and events returned to pre-pandemic levels in the quarter. During the quarter, the company inked a deal with Apollo Global Management, Inc. to sell its media business — Verizon Media — for $5 billion. The deal covers Verizon Media’s assets, including iconic brands such as Yahoo and AOL, and leading ad tech and media platform businesses. This carve-out will allow Verizon Media to aggressively pursue growth areas.

Other Details

Total operating expenses increased 10.9% year over year to $25,599 million due to high infrastructure investments, while operating income increased 10.9% year over year to $8,165 million owing to higher revenues. Adjusted EBITDA improved to $12,185 million from $11,542 million for respective margins of 36.1% and 37.9%. During the quarter, Verizon aimed to harness the power of the newly acquired C-Band spectrum for faster 5G rollout across the country and started the installation of equipment from Ericsson and Samsung Electronics. It also inked deals with  two of the leading independent operators of wireless communication towers in the United States, while deploying signal repeaters from two different firms at multiple points across its network to augment 5G Ultra Wideband coverage and improve end-user experience.     

Cash Flow & Liquidity

For the first six months of 2021, Verizon generated $20,438 million of net cash from operating activities compared with $23,552 million in the year-ago period. Free cash flow (non-GAAP) for the first half of 2021 was $11,722 million, down from $13,702 million in the prior-year period. As of Jun 30, 2021, the company had $4,657 million in cash and cash equivalents with $144,894 million of long-term debt.  

Guidance Up 

With strong first-half performance and healthy growth momentum, Verizon revised its earlier guidance for 2021 to better reflect the improving business conditions. The company presently expects adjusted earnings in the range of $5.25 to $5.35 per share, up from earlier projections of $5.00 to $5.15. Total wireless service revenues are likely to grow in the range of 3.5-4%, up from 3% expected earlier.

Zacks Rank & Stocks to Consider

Verizon carries a Zacks Rank #3 (Hold) at present. Some better-ranked stocks in the broader industry are SeaChange International, Inc. (SEAC - Free Report) , Ooma, Inc. (OOMA - Free Report) and TESSCO Technologies Incorporated (TESS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SeaChange has a long-term earnings growth expectation of 10%. It delivered an earnings surprise of 12.2%, on average, in the trailing four quarters.

Ooma delivered an earnings surprise of 65.5%, on average, in the trailing four quarters.

TESSCO delivered an earnings surprise of 2.5%, on average, in the trailing four quarters.