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Verizon Trims Workforce to Lower Operating Costs by $10B

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In a concerted effort to reduce operating costs, Verizon Communications Inc. (VZ - Free Report) recently offered a voluntary severance package to 44,000 employees. The strategic endeavor will also benefit the company to invest in technology upgrade and state-of-the-art infrastructure for faster deployment of 5G technology.

The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support anticipated growth in data services. Although these investments will eventually help minimize service delivery costs to adequately support broadband competition, rural coverage and wireless densification; short-term profitability is likely to get eroded leading to earnings dilution. In the view of such circumstances, the decision to lower costs by eliminating excess workforce seems to be a prudent one. Incidentally, Verizon recorded an average return of 12.7% in the past year, while the industry witnessed a decline of 1.2%.


 

Verizon aims to save about $10 billion in costs through the layoff scheme. The employees eligible for the severance package were offered three weeks’ pay for every completed year of service, subject to maximum limit of 60 weeks.

In a separate development, Verizon simultaneously announced that some of its information technology employees will be transferred to Infosys Limited (INFY - Free Report) in India as part of a $700 million outsourcing agreement. This involves about 2,500 employees, who would be primarily involved in application development and management services, and business process management services.

Per the company directive, the transferred employees are not eligible for any severance package and would not be entitled to receive any bonus in 2018 if they decline the opportunity to shift base to India. Although this has led to some resentment among senior employees, it is likely to reign supreme for the broader interests of the company.

Verizon currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are CenturyLink, Inc. (CTL - Free Report) and Telenav, Inc. (TNAV - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CenturyLink has trumped earnings estimates twice in the trailing four quarters, with an average positive surprise being 13.7%.    

Telenav surpassed earnings estimates in the trailing four quarters, recording an average positive surprise being 3.7%.

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