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Why Is Verizon (VZ) Down 2.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for Verizon Communications (VZ - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Verizon 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 Misses on Q4 Earnings Despite Higher Revenues
Verizon reported mixed fourth-quarter 2022 results with the top line beating the Zacks Consensus Estimate but the bottom line missing the same. The telecom giant is witnessing significant 5G adoption and fixed wireless broadband momentum. It recorded the best quarterly performance in seven years related to postpaid phone net additions of 217,000, and retail postpaid net additions of 1,434,000. Strong demand for Fios and fixed wireless products also led to the best total broadband quarterly performance in over a decade with total broadband net additions of 416,000.
However, high operating expenses weighed on the margins and the adjusted earnings failed to meet the consensus estimate.
Net Income
On a GAAP basis, net income in the quarter was $6,698 million or $1.56 per share compared with $4,737 million or $1.11 per share in the prior-year quarter. The year-over-year increase despite higher operating expenses was primarily attributable to a net pre-tax benefit of approximately $2.5 billion related to a mark-to-market adjustment for pension and OPEB (other post-employment benefits) liabilities. Excluding non-recurring items, quarterly adjusted earnings per share were $1.19 compared with the restated tally of $1.33 in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by a penny.
For 2022, Verizon recorded a net income of $21,748 million or $5.06 per share compared with $22,618 million or $5.32 per share for 2021. Excluding non-recurring items, adjusted earnings for 2022 were $5.18 per share compared with the restated tally of $5.50 for 2021.
Revenues
Quarterly total operating revenues increased to $35,251 million from $34,067 million in the prior year as strong wireless service revenues and higher wireless equipment revenues were partially offset by wireline decline and divestures. The top line beat the consensus estimate of $35,059 million. For 2022, total operating revenues increased 2.4% year over year to $136,835 million.
Quarterly Segment Results
Consumer: Total revenues from this segment increased 4.2% year over year to $26,770 million, driven by solid demand for higher-tier premium mobility and broadband offerings and incremental contribution from TracFone. Strong wireless service revenue momentum and higher equipment revenues were witnessed in the quarter.
Service revenues were up 5% to $18,443 million, while wireless equipment revenues jumped 3.3% to $6,528 million, led by higher work-from-home-driven customer activities. Other revenues totaled $1,799 million, down 0.8% year over year.
Verizon recorded 41,000 wireless retail postpaid phone net additions in the quarter due to strong fixed wireless momentum, tablet and wearables adoption. Wireless retail postpaid churn was 1.06%, while retail postpaid phone churn was 0.86%. The company recorded 56,000 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 262,000 for the quarter. However, Verizon registered 80,000 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 4.4% to $7,028 million with a margin of 26.3%, down from 28.6% in the year-ago quarter. EBITDA decreased 2% to $10,139 million with a margin of 37.9% compared with 40.3% in the prior-year quarter due to higher promotional expense related to device subsidies.
Business: The segment revenues were up 1.2% to $7,900 million due to pricing actions and growth in customer base. Verizon had 455,000 wireless retail postpaid net additions in the quarter, including 176,000 postpaid phone net additions. Wireless retail postpaid churn was 1.38%, while retail postpaid phone churn was 1.06%. Fixed wireless broadband net additions were 117,000 for the quarter. Operating income declined to $585 million from $796 million in the year-ago quarter with respective margins of 7.4% and 10.2%. EBITDA was down 8.2% to $1,683 million owing to higher subsidies for a margin of 21.3% compared with 23.5% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses increased 5.9% year over year to $28,026 million, while operating income was down 5% to $7,225 million. Consolidated adjusted EBITDA declined marginally to $11,747 million from $11,765 million for respective margins of 33.3% and 34.5% owing to the divesture of Verizon Media.
Cash Flow & Liquidity
For 2022, Verizon generated $37,141 million of net cash from operating activities compared with $39,539 million in the year-ago period. The reduction was primarily induced by working capital impacts as the increase in activation volumes affected receivable levels, and higher inventory levels as part of supply chain management. Free cash flow for 2022 was $14,054 million compared with $19,253 million in the prior-year period.
As of Dec 31, 2022, the company had $2,605 million in cash and cash equivalents with $140,676 million of long-term debt compared with the respective tallies of $2,921 million and 143,425 million. Capital expenditure for 2022 totaled $23,087 million, up from $20,286 million in prior-year period, driven by expenses of $6.2 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 across the country.
Guidance
Verizon has offered an initial guidance for 2023 and expects wireless service revenue growth in the range of 2.5%-4.5%. Adjusted EBITDA is likely to be $47-$48.5 billion. The company expects adjusted earnings in the range of $4.55 to $4.85 per share. Capital expenditure is estimated between $18.25 billion and $19.25 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
Currently, Verizon has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Verizon has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Verizon (VZ) Down 2.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Verizon Communications (VZ - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Verizon 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 Misses on Q4 Earnings Despite Higher Revenues
Verizon reported mixed fourth-quarter 2022 results with the top line beating the Zacks Consensus Estimate but the bottom line missing the same. The telecom giant is witnessing significant 5G adoption and fixed wireless broadband momentum. It recorded the best quarterly performance in seven years related to postpaid phone net additions of 217,000, and retail postpaid net additions of 1,434,000. Strong demand for Fios and fixed wireless products also led to the best total broadband quarterly performance in over a decade with total broadband net additions of 416,000.
However, high operating expenses weighed on the margins and the adjusted earnings failed to meet the consensus estimate.
Net Income
On a GAAP basis, net income in the quarter was $6,698 million or $1.56 per share compared with $4,737 million or $1.11 per share in the prior-year quarter. The year-over-year increase despite higher operating expenses was primarily attributable to a net pre-tax benefit of approximately $2.5 billion related to a mark-to-market adjustment for pension and OPEB (other post-employment benefits) liabilities. Excluding non-recurring items, quarterly adjusted earnings per share were $1.19 compared with the restated tally of $1.33 in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by a penny.
For 2022, Verizon recorded a net income of $21,748 million or $5.06 per share compared with $22,618 million or $5.32 per share for 2021. Excluding non-recurring items, adjusted earnings for 2022 were $5.18 per share compared with the restated tally of $5.50 for 2021.
Revenues
Quarterly total operating revenues increased to $35,251 million from $34,067 million in the prior year as strong wireless service revenues and higher wireless equipment revenues were partially offset by wireline decline and divestures. The top line beat the consensus estimate of $35,059 million. For 2022, total operating revenues increased 2.4% year over year to $136,835 million.
Quarterly Segment Results
Consumer: Total revenues from this segment increased 4.2% year over year to $26,770 million, driven by solid demand for higher-tier premium mobility and broadband offerings and incremental contribution from TracFone. Strong wireless service revenue momentum and higher equipment revenues were witnessed in the quarter.
Service revenues were up 5% to $18,443 million, while wireless equipment revenues jumped 3.3% to $6,528 million, led by higher work-from-home-driven customer activities. Other revenues totaled $1,799 million, down 0.8% year over year.
Verizon recorded 41,000 wireless retail postpaid phone net additions in the quarter due to strong fixed wireless momentum, tablet and wearables adoption. Wireless retail postpaid churn was 1.06%, while retail postpaid phone churn was 0.86%. The company recorded 56,000 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 262,000 for the quarter. However, Verizon registered 80,000 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 4.4% to $7,028 million with a margin of 26.3%, down from 28.6% in the year-ago quarter. EBITDA decreased 2% to $10,139 million with a margin of 37.9% compared with 40.3% in the prior-year quarter due to higher promotional expense related to device subsidies.
Business: The segment revenues were up 1.2% to $7,900 million due to pricing actions and growth in customer base. Verizon had 455,000 wireless retail postpaid net additions in the quarter, including 176,000 postpaid phone net additions. Wireless retail postpaid churn was 1.38%, while retail postpaid phone churn was 1.06%. Fixed wireless broadband net additions were 117,000 for the quarter. Operating income declined to $585 million from $796 million in the year-ago quarter with respective margins of 7.4% and 10.2%. EBITDA was down 8.2% to $1,683 million owing to higher subsidies for a margin of 21.3% compared with 23.5% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses increased 5.9% year over year to $28,026 million, while operating income was down 5% to $7,225 million. Consolidated adjusted EBITDA declined marginally to $11,747 million from $11,765 million for respective margins of 33.3% and 34.5% owing to the divesture of Verizon Media.
Cash Flow & Liquidity
For 2022, Verizon generated $37,141 million of net cash from operating activities compared with $39,539 million in the year-ago period. The reduction was primarily induced by working capital impacts as the increase in activation volumes affected receivable levels, and higher inventory levels as part of supply chain management. Free cash flow for 2022 was $14,054 million compared with $19,253 million in the prior-year period.
As of Dec 31, 2022, the company had $2,605 million in cash and cash equivalents with $140,676 million of long-term debt compared with the respective tallies of $2,921 million and 143,425 million. Capital expenditure for 2022 totaled $23,087 million, up from $20,286 million in prior-year period, driven by expenses of $6.2 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 across the country.
Guidance
Verizon has offered an initial guidance for 2023 and expects wireless service revenue growth in the range of 2.5%-4.5%. Adjusted EBITDA is likely to be $47-$48.5 billion. The company expects adjusted earnings in the range of $4.55 to $4.85 per share. Capital expenditure is estimated between $18.25 billion and $19.25 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
Currently, Verizon has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Verizon has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.