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Verizon (Vz) Q3 Earnings Beat Estimates on Wireless Traction

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Verizon Communications Inc. (VZ - Free Report) continued its solid performance in third-quarter 2018, primarily led by the wireless business. The company recorded healthy top-line growth led by solid service revenues and remains well poised to benefit from the 5G era. The bottom line also benefited from significant savings from the tax reform.

Quarter Details

GAAP earnings for the reported quarter were $5,062 million or $1.19 per share compared with $3,736 million or 89 cents per share in the year-ago quarter. The year-over-year increase in GAAP earnings was primarily attributable to higher revenues. Excluding non-recurring items, adjusted earnings were $1.22 per share compared with 98 cents in the year-earlier quarter and comfortably exceeded the Zacks Consensus Estimate of $1.19.

Verizon Communications Inc. Price, Consensus and EPS Surprise

 

Verizon Communications Inc. Price, Consensus and EPS Surprise | Verizon Communications Inc. Quote

Consolidated GAAP revenues increased 2.8% year over year to $32,607 million on the back of a solid performance in the wireless business and exceeded the Zacks Consensus Estimate of $32,542 million. Operating income improved 9.8% year over year to $7,675 million despite slightly higher operating expenses.

Segment Performance: Wireless

Total revenues from this segment were $22,973 million, up 6.5% year over year. Service revenues improved 0.8% to $15,966 million owing to higher access plans and increase in the average connections per account. Equipment revenues increased 23% to $5,353 million as the company focused on high-end devices, while Other revenues totaled $1,654 million, up 19.3% year over year.

Operating income improved 11.9% to $8,511 million due to higher retail postpaid connections. Quarterly operating income margin was 37% compared with 35.2% in the year-ago quarter. Segment EBITDA increased 10% to $10,965 million, resulting in EBITDA margin of 47.7% compared with respective tallies of $9,969 million and 46.2% in the prior-year quarter.

Verizon reported a net increase of 515,000 retail postpaid connections in third-quarter 2018. Quarterly retail postpaid churn rate marginally increased to 1.04% from 0.97% in the year-ago quarter. Retail postpaid ARPA (average revenue per account) was $136.58 compared with $136.31 in the year-ago quarter.

Wireline Segment

Total revenues in the segment were $7,371 million, down 3.8% year over year owing to lower Business Markets revenues (down 7% to $840 million) and Enterprise Solutions (down 4% to $2,172 million). Partner Solutions revenues also decreased 6.3% to $1,166 million, while Consumer retail revenues declined 2.1% to $3,138 million. Other revenues were up 12.2% to $55 million.

Although Verizon added a net of 54,000 Fios Internet connections due to strong demand for value broadband connections, it lost 63,000 Fios Video connections amid pressures from cord-cutting of video bundles.

Quarterly operating loss was $50 million, against operating income of $65 million in the year-ago quarter. Segment EBITDA fell 6.9% to $1,502 million for EBITDA margin of 20.4% compared with 21.1% in the year-ago quarter.

Cash Flow and Liquidity

Verizon generated $26,244 million of cash from operating activities for the first nine months of 2018 compared with $16,475 million in the year-ago period. At the end of the reported quarter, Verizon had $2,538 million of cash and cash equivalents and $106,440 million in long-term debts. The company was able to reduce its debt burden by $4.2 billion year to date due to strong cash flow and tax reform benefits.

Verizon contributed $1.7 billion to employee benefit program and remains on track to achieve cumulative cost savings of $10 billion by 2021. The company expects to achieve this goal through zero-based budgeting and the recently announced Voluntary Separation Program.

Outlook Reiterated  

For full-year 2018, Verizon reiterated its earlier guidance and continues to expect both GAAP revenues and adjusted earnings per share to increase by low single-digit percentage rates driven by expected savings from tax reform and higher cash flow from operations. However, capital expenditures for 2018 are likely to be in the range of $16.6 billion to $17 billion, down from $17.0 billion to $17.8 billion expected earlier.

Moving Forward

With one of the most efficient wireless networks in the United States, Verizon continues to deploy the latest 4G LTE Advanced technologies to deliver faster peak data speeds and capacity for customers, driven by customer-focused planning, disciplined engineering and constant strategic investment. The company plans to launch next-generation 5G wireless residential broadband services in three to five U.S. markets in 2018 and has already launched the first commercial 5G network in Sacramento, CA, in October. The company expects solid traction from the 5G era slated to begin from fourth-quarter 2018.

We remain impressed with the healthy third-quarter results, bullish outlook and healthy prospects of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the broader industry include United States Cellular Corporation (USM - Free Report) , sporting Zacks Rank #1 (Strong Buy), and ATN International, Inc. (ATNI - Free Report) and Harris Corporation , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

United States Cellular Corporation delivered an average positive earnings surprise of 340.4% in the trailing four quarters, beating estimates in each.

ATN International has delivered an average positive earnings surprise of 146.1% in the trailing four quarters, beating estimates thrice.

Harris has a long-term earnings growth expectation of 6%. It delivered an average positive earnings surprise of 7.1% in the trailing four quarters, beating estimates on each occasion.

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