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Why Is Verizon (VZ) Down 3.4% Since Last Earnings Report?
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A month has gone by since the last earnings report for Verizon Communications (VZ - Free Report) . Shares have lost about 3.4% 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 catalysts.
Verizon Beats Q2 Earnings Estimates, Falters on Revenues
Verizon reported mixed second-quarter 2023 results with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. The telecom giant is witnessing significant 5G adoption and fixed wireless broadband momentum. Strong demand for Fios and fixed wireless products also led to healthy broadband performance with total broadband net additions of 418,000.
Verizon witnessed solid traction in the wireless business with 8,000 total postpaid phone net additions in the quarter along with retail postpaid net additions of 612,000. This buoyed the shares in pre-market trading.
Net Income
On a GAAP basis, net income in the quarter was $4,766 million or $1.10 per share compared with $5,315 million or $1.24 per share in the prior-year quarter. The year-over-year decrease despite lower operating expenses was primarily attributable to top-line contraction. 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.
Revenues
Quarterly total operating revenues decreased to $32,596 million from $33,789 million in the prior year owing to lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades. The top line missed the consensus estimate of $33,390 million.
Quarterly Segment Results
Consumer: Total revenues from this segment declined 4.1% year over year to $24,558 million, as higher service revenues were more than offset by lower equipment revenues in the quarter. However, it exceeded our revenue estimate of $23,891 million for the segment led by solid wireless momentum.
Service revenues were up 2.7% to $18,641 million, while wireless equipment revenues slumped 22.4% to $4,430 million. Other revenues totaled $1,487 million, down 14.9% year over year.
The segment recorded 136,000 wireless retail postpaid phone net losses and 304,000 wireless retail prepaid net losses in the quarter. Wireless retail postpaid churn was 0.95%, while retail postpaid phone churn was 0.76%. The company recorded 51,000 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 251,000 for the quarter. However, Verizon registered 69,000 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 improved 2.5% to $7,330 million on lower operating expenses with a margin of 29.8%, up from 27.9% in the year-ago quarter. EBITDA increased 2.1% to $10,577 million with a margin of 43.1% compared with 40.5% in the prior-year quarter due to lower costs of wireless equipment.
Business: The segment revenues were down 1.9% to $7,483 million due to lower wireline and wireless equipment revenues, partially offset by growth in wireless service revenue. It also was lower than our estimates of $7,657 million largely due to challenging macroeconomic conditions.
The segment had 308,000 wireless retail postpaid net additions in the quarter, including 144,000 postpaid phone net additions. Wireless retail postpaid churn was 1.48%, while retail postpaid phone churn was 1.10%. Fixed wireless broadband net additions were 133,000 for the quarter. Operating income declined to $533 million from $675 million in the year-ago quarter with respective margins of 7.1% and 8.9%. EBITDA was down 6.5% to $1,636 million owing to decline in high margin wireline revenues for a margin of 21.9% compared with 22.9% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses decreased 3.3% year over year to $25,376 million, while operating income was down 4.4% to $7,220 million. Consolidated adjusted EBITDA improved to $11,971 million from $11,873 million for respective margins of 36.7% and 35.1%.
Cash Flow & Liquidity
Verizon generated $18,020 million of net cash from operating activities in the first six months of 2023 compared with $17,665 million in the year-ago period. The improvement was primarily due to working capital improvements driven by lower inventory levels, fewer phone upgrades and a modest improvement in customer payment patterns. Free cash flow was $5,619 million for the quarter compared with $6,174 million in the prior-year period.
As of Jun 30, 2023, the company had $4,803 million in cash and cash equivalents with $137,871 million of long-term debt.
Guidance Reiterated
Verizon has reiterated its 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 an upward trend in estimates review.
VGM Scores
At this time, Verizon has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Verizon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Verizon (VZ) Down 3.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Verizon Communications (VZ - Free Report) . Shares have lost about 3.4% 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 catalysts.
Verizon Beats Q2 Earnings Estimates, Falters on Revenues
Verizon reported mixed second-quarter 2023 results with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. The telecom giant is witnessing significant 5G adoption and fixed wireless broadband momentum. Strong demand for Fios and fixed wireless products also led to healthy broadband performance with total broadband net additions of 418,000.
Verizon witnessed solid traction in the wireless business with 8,000 total postpaid phone net additions in the quarter along with retail postpaid net additions of 612,000. This buoyed the shares in pre-market trading.
Net Income
On a GAAP basis, net income in the quarter was $4,766 million or $1.10 per share compared with $5,315 million or $1.24 per share in the prior-year quarter. The year-over-year decrease despite lower operating expenses was primarily attributable to top-line contraction. 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.
Revenues
Quarterly total operating revenues decreased to $32,596 million from $33,789 million in the prior year owing to lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades. The top line missed the consensus estimate of $33,390 million.
Quarterly Segment Results
Consumer: Total revenues from this segment declined 4.1% year over year to $24,558 million, as higher service revenues were more than offset by lower equipment revenues in the quarter. However, it exceeded our revenue estimate of $23,891 million for the segment led by solid wireless momentum.
Service revenues were up 2.7% to $18,641 million, while wireless equipment revenues slumped 22.4% to $4,430 million. Other revenues totaled $1,487 million, down 14.9% year over year.
The segment recorded 136,000 wireless retail postpaid phone net losses and 304,000 wireless retail prepaid net losses in the quarter. Wireless retail postpaid churn was 0.95%, while retail postpaid phone churn was 0.76%. The company recorded 51,000 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 251,000 for the quarter. However, Verizon registered 69,000 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 improved 2.5% to $7,330 million on lower operating expenses with a margin of 29.8%, up from 27.9% in the year-ago quarter. EBITDA increased 2.1% to $10,577 million with a margin of 43.1% compared with 40.5% in the prior-year quarter due to lower costs of wireless equipment.
Business: The segment revenues were down 1.9% to $7,483 million due to lower wireline and wireless equipment revenues, partially offset by growth in wireless service revenue. It also was lower than our estimates of $7,657 million largely due to challenging macroeconomic conditions.
The segment had 308,000 wireless retail postpaid net additions in the quarter, including 144,000 postpaid phone net additions. Wireless retail postpaid churn was 1.48%, while retail postpaid phone churn was 1.10%. Fixed wireless broadband net additions were 133,000 for the quarter. Operating income declined to $533 million from $675 million in the year-ago quarter with respective margins of 7.1% and 8.9%. EBITDA was down 6.5% to $1,636 million owing to decline in high margin wireline revenues for a margin of 21.9% compared with 22.9% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses decreased 3.3% year over year to $25,376 million, while operating income was down 4.4% to $7,220 million. Consolidated adjusted EBITDA improved to $11,971 million from $11,873 million for respective margins of 36.7% and 35.1%.
Cash Flow & Liquidity
Verizon generated $18,020 million of net cash from operating activities in the first six months of 2023 compared with $17,665 million in the year-ago period. The improvement was primarily due to working capital improvements driven by lower inventory levels, fewer phone upgrades and a modest improvement in customer payment patterns. Free cash flow was $5,619 million for the quarter compared with $6,174 million in the prior-year period.
As of Jun 30, 2023, the company had $4,803 million in cash and cash equivalents with $137,871 million of long-term debt.
Guidance Reiterated
Verizon has reiterated its 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 an upward trend in estimates review.
VGM Scores
At this time, Verizon has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Verizon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.