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Verizon (VZ) Posts Mixed Q3: Earnings Beat, Revenues Lag
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Verizon Communications Inc. (VZ - Free Report) reported mixed financial numbers in the third quarter of 2016. While the top line missed the Zacks Consensus Estimate, the bottom line managed to beat the same.
Adjusted earnings per share came in at $1.01 in the reported quarter, beating the Zacks Consensus Estimate of 99 cents. Quarterly GAAP net income was $3,747 million compared with $4,171 million in the year-ago quarter.
Quarterly total revenue decreased 6.7% year over year to $30,937 million. The Zacks Consensus Estimate for the same was pegged at $31,141 million.
Total operating expenses in the third quarter of 2016 were $24,397 million, down 4.8% year over year. Operating income came in at $6,540 million compared with $7,535 million in the year-ago quarter. Adjusted EBITDA was $11,279 million against $11,079 million in the prior-year quarter.
Cash Flow & Liquidity
In the third quarter of 2016, Verizon generated $4,800 million of cash from operating activities. Free cash flow in the reported quarter was $674 million. At the end of the third quarter of 2016, Verizon had $6,441 million in cash and $102,739 million in long-term debt compared with $4,470 million and $103,240 million, respectively, at the end of fiscal 2015. The debt-to-equity ratio was 4.67 at the end of third quarter of 2016 compared with 5.78 at the end of 2015.
Wireless Segment
Total revenue was $22,101 million, down 3.9% year over year. Service revenues were down 5.2% to $16,684 million. Equipment revenues decreased 3.9% to $4,124 million. Other revenues totaled $1,293million, up 16%.
Operating expenses decreased 5.8% to $14,454 million. Operating income declined 0.3% to $7,647 million. Quarterly operating income margin was 34.6% in comparison with 33.3% in the year-ago comparable period. Segment EBITDA increased 0.1% to $9,934 million. EBITDA margin was 44.9% compared with 43.2% in the prior-year quarter.
At the end of the third quarter of 2016, Verizon had 113.676 million retail subscribers, up 2.6% year over year. Out of the total, retail postpaid subscriber count was 107.780 million, up 3.9%; and retail prepaid user count was 5.456 million, down 4.9%. During the reported quarter, the company added 0.442 million postpaid customers (down 65.7% year over year) while prepaid customer count increased by 0.8 million.
Quarterly retail postpaid churn rate was 1.04% compared with 0.93% in the year-ago quarter whereas total retail churn rate was 1.28% versus 1.21% in the year-ago quarter. Of the total activated phones, smartphones accounted for 93.1% compared with 91.3% in the prior-year quarter.
Wireline Segment
Total revenue at the segment was $7,787 million, down 2.3% year over year. Consumer retail revenues were up 0.2% to $3,174 million. Small business revenues grossed $411 million, down 5.3%. Global Enterprise revenues contracted 3.4% to $2,886 million. Global wholesale revenues dropped 3.9% to $1,239 million and Other revenues decreased 12.5% to $77 million.
Operating expenses decreased 5.5% to $7,631 million. Quarterly operating income stood at $156 million. Quarterly operating margin came in at 2% against a loss margin of 1.4% in the year-ago quarter. Segment EBITDA was down 10.1% to $1,654 million. EBITDA margin was 21.2% compared with 18.9% in the year-ago quarter.
At the end of the third quarter of 2016, FiOS video subscriber base was 4.673 million (up 1.3% year over year), FiOS Internet subscriber count was 5.585 million (up 4.7%) and FiOS digital voice residence connections totaled 3.382 million (up 1.4%). During the quarter, Verizon gained 36,000 FiOS video subscribers, 90,000 FiOS Internet customers and 3,000 FiOS digital voice residential connections.
High-speed Internet connection tally dropped 16.2% year over year to 1.453 million while total broadband connection number stood at 7.038 million. Primary residence switched access connections decreased 15% to 3.359 million and Primary residence connections fell 22.4% to 7.241 million. Total retail residence voice connections declined 7.3% to 7.482 million and total voice connections contracted 7.4% to 14.194 million.
Recent Developments
Verizon is facing intense competitive pressure from rivals like AT&T Inc. (T - Free Report) . In order to counter this, the company has been focusing on generating revenues from video streaming services and digital advertising. Keeping with this strategy, it acquired AOL and Millennium Media. But in a bid to strengthen its presence in this space, the company has entered into an agreement to acquire Yahoo! Inc.’s core assets for $4.8 billion. If Verizon can effectively assimilate the strategic assets with that of AOL and Millennium Media, we believe it will gain an edge over bigwigs like Facebook Inc. in this segment.
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Verizon (VZ) Posts Mixed Q3: Earnings Beat, Revenues Lag
Verizon Communications Inc. (VZ - Free Report) reported mixed financial numbers in the third quarter of 2016. While the top line missed the Zacks Consensus Estimate, the bottom line managed to beat the same.
Adjusted earnings per share came in at $1.01 in the reported quarter, beating the Zacks Consensus Estimate of 99 cents. Quarterly GAAP net income was $3,747 million compared with $4,171 million in the year-ago quarter.
Quarterly total revenue decreased 6.7% year over year to $30,937 million. The Zacks Consensus Estimate for the same was pegged at $31,141 million.
Total operating expenses in the third quarter of 2016 were $24,397 million, down 4.8% year over year. Operating income came in at $6,540 million compared with $7,535 million in the year-ago quarter. Adjusted EBITDA was $11,279 million against $11,079 million in the prior-year quarter.
Cash Flow & Liquidity
In the third quarter of 2016, Verizon generated $4,800 million of cash from operating activities. Free cash flow in the reported quarter was $674 million. At the end of the third quarter of 2016, Verizon had $6,441 million in cash and $102,739 million in long-term debt compared with $4,470 million and $103,240 million, respectively, at the end of fiscal 2015. The debt-to-equity ratio was 4.67 at the end of third quarter of 2016 compared with 5.78 at the end of 2015.
Wireless Segment
Total revenue was $22,101 million, down 3.9% year over year. Service revenues were down 5.2% to $16,684 million. Equipment revenues decreased 3.9% to $4,124 million. Other revenues totaled $1,293million, up 16%.
Operating expenses decreased 5.8% to $14,454 million. Operating income declined 0.3% to $7,647 million. Quarterly operating income margin was 34.6% in comparison with 33.3% in the year-ago comparable period. Segment EBITDA increased 0.1% to $9,934 million. EBITDA margin was 44.9% compared with 43.2% in the prior-year quarter.
At the end of the third quarter of 2016, Verizon had 113.676 million retail subscribers, up 2.6% year over year. Out of the total, retail postpaid subscriber count was 107.780 million, up 3.9%; and retail prepaid user count was 5.456 million, down 4.9%. During the reported quarter, the company added 0.442 million postpaid customers (down 65.7% year over year) while prepaid customer count increased by 0.8 million.
Quarterly retail postpaid churn rate was 1.04% compared with 0.93% in the year-ago quarter whereas total retail churn rate was 1.28% versus 1.21% in the year-ago quarter. Of the total activated phones, smartphones accounted for 93.1% compared with 91.3% in the prior-year quarter.
Wireline Segment
Total revenue at the segment was $7,787 million, down 2.3% year over year. Consumer retail revenues were up 0.2% to $3,174 million. Small business revenues grossed $411 million, down 5.3%. Global Enterprise revenues contracted 3.4% to $2,886 million. Global wholesale revenues dropped 3.9% to $1,239 million and Other revenues decreased 12.5% to $77 million.
Operating expenses decreased 5.5% to $7,631 million. Quarterly operating income stood at $156 million. Quarterly operating margin came in at 2% against a loss margin of 1.4% in the year-ago quarter. Segment EBITDA was down 10.1% to $1,654 million. EBITDA margin was 21.2% compared with 18.9% in the year-ago quarter.
At the end of the third quarter of 2016, FiOS video subscriber base was 4.673 million (up 1.3% year over year), FiOS Internet subscriber count was 5.585 million (up 4.7%) and FiOS digital voice residence connections totaled 3.382 million (up 1.4%). During the quarter, Verizon gained 36,000 FiOS video subscribers, 90,000 FiOS Internet customers and 3,000 FiOS digital voice residential connections.
High-speed Internet connection tally dropped 16.2% year over year to 1.453 million while total broadband connection number stood at 7.038 million. Primary residence switched access connections decreased 15% to 3.359 million and Primary residence connections fell 22.4% to 7.241 million. Total retail residence voice connections declined 7.3% to 7.482 million and total voice connections contracted 7.4% to 14.194 million.
Recent Developments
Verizon is facing intense competitive pressure from rivals like AT&T Inc. (T - Free Report) . In order to counter this, the company has been focusing on generating revenues from video streaming services and digital advertising. Keeping with this strategy, it acquired AOL and Millennium Media. But in a bid to strengthen its presence in this space, the company has entered into an agreement to acquire Yahoo! Inc.’s core assets for $4.8 billion. If Verizon can effectively assimilate the strategic assets with that of AOL and Millennium Media, we believe it will gain an edge over bigwigs like Facebook Inc. in this segment.
VERIZON COMM Price, Consensus and EPS Surprise
VERIZON COMM Price, Consensus and EPS Surprise | VERIZON COMM Quote
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>