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Verizon Communications Inc. (VZ - Free Report) reported relatively mixed second-quarter 2022 results, wherein the bottom line missed the Zacks Consensus Estimate but the top line beat the same. The telecom giant is witnessing significant 5G adoption and fixed wireless broadband momentum. However, a lower guidance for 2022 dragged the shares down in pre-market trading as investors probably expected a solid growth momentum.
Net Income
On a GAAP basis, net income in the quarter was $5,315 million or $1.24 per share compared with $5,949 million or $1.40 per share in the prior-year quarter. The year-over-year decrease despite a flat top-line trajectory was primarily attributable to higher operating expenses. Quarterly adjusted earnings per share were $1.31 compared with $1.39 in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 3 cents.
Verizon Communications Inc. Price, Consensus and EPS Surprise
Quarterly total operating revenues remained relatively flat year over year at $33,789 million. Strong wireless service revenues and higher wireless equipment revenues were offset by wireline decline and divestures. The top line, however, beat the consensus estimate of $33,735 million.
Quarterly Segment Results
Consumer: Total revenues from this segment increased 9.1% year over year to $25,604 million, driven by strong demand for higher-tier premium mobility and broadband offerings and incremental contribution from TracFone. Strong wireless service revenue momentum, healthy profitability and higher equipment revenues were witnessed in the quarter.
Service revenues were up 8.6% to $18,149 million, while wireless equipment revenues jumped 20.4% to $5,708 million, led by higher work-from-home-driven customer activities. Other revenues totaled $1,747 million, down 13.9% year over year.
Verizon recorded 215,000 wireless retail postpaid net loss in the quarter due to competitive offerings from rivals. Wireless retail postpaid churn was 0.93%, while retail postpaid phone churn was 0.75%. The company recorded 30,000 Fios Internet net additions as high demand for reliable fiber optic broadband was spurred by increasing work-from-home trend. Fixed wireless broadband net additions were 168,000 for the quarter. However, Verizon registered 86,000 Fios Video net losses in the quarter, reflecting the ongoing shift from traditional linear video to over-the-top offerings.
The segment’s operating income declined 4.6% to $7,150 million with a margin of 27.9%, down from 31.9% in the year-ago quarter. EBITDA decreased 0.3% to $10,361 million with a margin of 40.5% compared with 44.3% in the prior-year quarter.
Business: The segment revenues were down 1.8% to $7,626 million due to a decline in legacy wireline. Verizon had 430,000 wireless retail postpaid net additions in the quarter, including 227,000 postpaid phone net additions. Operating income declined to $675 million from $856 million in the year-ago quarter with respective margins of 8.9% and 11%. EBITDA was down 6.5% to $1,749 million for a margin of 22.9% compared with 24.1% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses increased 2.5% year over year to $26,237 million, while operating income was down 7.5% to $7,552 million. Consolidated adjusted EBITDA declined to $11,873 million from $12,185 million for respective margins of 35.1% and 36.1% owing to the divesture of Verizon Media.
Cash Flow & Liquidity
For the first six months of 2022, Verizon generated $17,665 million of net cash from operating activities compared with $20,438 million in the year-ago quarter. The reduction was primarily induced by working capital impacts as the increase in activation volumes affected receivable levels, and inventory levels increased as part of supply chain management. Free cash flow for the first half of 2022 was $7,174 million compared with $11,722 million in the prior-year period.
As of Jun 30, 2022, the company had $1,857 million in cash and cash equivalents with $136,184 million of long-term debt. Capital expenditure for the first half of 2022 totaled $10,491 million, up from $8,716 million in prior-year period, driven by expenses of $2.8 billion related to C-Band deployment. The continued build out of OneFiber and C-Band spectrum expansion will expand the reach and capacity of its 5G Ultra Wideband network and will likely enable it to serve an additional 40 million people in the near term.
2022 Guidance Lowered
Verizon has lowered its earlier guidance for 2022 and currently expects organic service and other revenue growth to be down 1% to flat year over year, compared with earlier projections of a flat trajectory. Reported wireless service revenue growth is expected in the range of 8.5%-9.5% compared with its previously guided range of 9-10%. Adjusted EBITDA is likely to be down 1.5% to flat compared with the earlier range of 2% and 3% growth. The company expects adjusted earnings in the range of $5.10 to $5.25 per share, down from the previously guided range of $5.40 to $5.55 per share. Capital expenditure, excluding C-Band, is estimated between $16.5 billion and $17.5 billion.
A better-ranked stock in the broader industry is Sierra Wireless, Inc. , carrying a Zacks Rank #2 (Buy). It has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 223.7%, on average, in the trailing four quarters.
Over the past year, the stock has gained 40%. Earnings estimates for the current year have moved up 616.7% since July 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 15.7% upward since July 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 17.4%, on average. It has soared 160.1% in the past two years.
Motorola Solutions, Inc. (MSI - Free Report) , carrying a Zacks Rank #2, is another solid pick for investors. It delivered an earnings surprise of 7.4%, on average, in the trailing four quarters and has a long-term growth expectation of 9%.
Over the past two years, the stock has gained a modest 54.1%. As a leading provider of mission-critical communication products and services worldwide, Motorola has ensured a steady revenue stream from this niche market. The communications equipment maker intends to boost its position in the public safety domain by entering into strategic alliances with other players in the ecosystem.
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Verizon (VZ) Misses Q2 Earnings Estimates, Lowers Guidance
Verizon Communications Inc. (VZ - Free Report) reported relatively mixed second-quarter 2022 results, wherein the bottom line missed the Zacks Consensus Estimate but the top line beat the same. The telecom giant is witnessing significant 5G adoption and fixed wireless broadband momentum. However, a lower guidance for 2022 dragged the shares down in pre-market trading as investors probably expected a solid growth momentum.
Net Income
On a GAAP basis, net income in the quarter was $5,315 million or $1.24 per share compared with $5,949 million or $1.40 per share in the prior-year quarter. The year-over-year decrease despite a flat top-line trajectory was primarily attributable to higher operating expenses. Quarterly adjusted earnings per share were $1.31 compared with $1.39 in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 3 cents.
Verizon Communications Inc. Price, Consensus and EPS Surprise
Verizon Communications Inc. price-consensus-eps-surprise-chart | Verizon Communications Inc. Quote
Revenues
Quarterly total operating revenues remained relatively flat year over year at $33,789 million. Strong wireless service revenues and higher wireless equipment revenues were offset by wireline decline and divestures. The top line, however, beat the consensus estimate of $33,735 million.
Quarterly Segment Results
Consumer: Total revenues from this segment increased 9.1% year over year to $25,604 million, driven by strong demand for higher-tier premium mobility and broadband offerings and incremental contribution from TracFone. Strong wireless service revenue momentum, healthy profitability and higher equipment revenues were witnessed in the quarter.
Service revenues were up 8.6% to $18,149 million, while wireless equipment revenues jumped 20.4% to $5,708 million, led by higher work-from-home-driven customer activities. Other revenues totaled $1,747 million, down 13.9% year over year.
Verizon recorded 215,000 wireless retail postpaid net loss in the quarter due to competitive offerings from rivals. Wireless retail postpaid churn was 0.93%, while retail postpaid phone churn was 0.75%. The company recorded 30,000 Fios Internet net additions as high demand for reliable fiber optic broadband was spurred by increasing work-from-home trend. Fixed wireless broadband net additions were 168,000 for the quarter. However, Verizon registered 86,000 Fios Video net losses in the quarter, reflecting the ongoing shift from traditional linear video to over-the-top offerings.
The segment’s operating income declined 4.6% to $7,150 million with a margin of 27.9%, down from 31.9% in the year-ago quarter. EBITDA decreased 0.3% to $10,361 million with a margin of 40.5% compared with 44.3% in the prior-year quarter.
Business: The segment revenues were down 1.8% to $7,626 million due to a decline in legacy wireline. Verizon had 430,000 wireless retail postpaid net additions in the quarter, including 227,000 postpaid phone net additions. Operating income declined to $675 million from $856 million in the year-ago quarter with respective margins of 8.9% and 11%. EBITDA was down 6.5% to $1,749 million for a margin of 22.9% compared with 24.1% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses increased 2.5% year over year to $26,237 million, while operating income was down 7.5% to $7,552 million. Consolidated adjusted EBITDA declined to $11,873 million from $12,185 million for respective margins of 35.1% and 36.1% owing to the divesture of Verizon Media.
Cash Flow & Liquidity
For the first six months of 2022, Verizon generated $17,665 million of net cash from operating activities compared with $20,438 million in the year-ago quarter. The reduction was primarily induced by working capital impacts as the increase in activation volumes affected receivable levels, and inventory levels increased as part of supply chain management. Free cash flow for the first half of 2022 was $7,174 million compared with $11,722 million in the prior-year period.
As of Jun 30, 2022, the company had $1,857 million in cash and cash equivalents with $136,184 million of long-term debt. Capital expenditure for the first half of 2022 totaled $10,491 million, up from $8,716 million in prior-year period, driven by expenses of $2.8 billion related to C-Band deployment. The continued build out of OneFiber and C-Band spectrum expansion will expand the reach and capacity of its 5G Ultra Wideband network and will likely enable it to serve an additional 40 million people in the near term.
2022 Guidance Lowered
Verizon has lowered its earlier guidance for 2022 and currently expects organic service and other revenue growth to be down 1% to flat year over year, compared with earlier projections of a flat trajectory. Reported wireless service revenue growth is expected in the range of 8.5%-9.5% compared with its previously guided range of 9-10%. Adjusted EBITDA is likely to be down 1.5% to flat compared with the earlier range of 2% and 3% growth. The company expects adjusted earnings in the range of $5.10 to $5.25 per share, down from the previously guided range of $5.40 to $5.55 per share. Capital expenditure, excluding C-Band, is estimated between $16.5 billion and $17.5 billion.
Zacks Rank & Stock to Consider
Verizon currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A better-ranked stock in the broader industry is Sierra Wireless, Inc. , carrying a Zacks Rank #2 (Buy). It has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 223.7%, on average, in the trailing four quarters.
Over the past year, the stock has gained 40%. Earnings estimates for the current year have moved up 616.7% since July 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 15.7% upward since July 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 17.4%, on average. It has soared 160.1% in the past two years.
Motorola Solutions, Inc. (MSI - Free Report) , carrying a Zacks Rank #2, is another solid pick for investors. It delivered an earnings surprise of 7.4%, on average, in the trailing four quarters and has a long-term growth expectation of 9%.
Over the past two years, the stock has gained a modest 54.1%. As a leading provider of mission-critical communication products and services worldwide, Motorola has ensured a steady revenue stream from this niche market. The communications equipment maker intends to boost its position in the public safety domain by entering into strategic alliances with other players in the ecosystem.