Verizon (VZ) Beats Q3 Earnings Estimates, Misses on Revenues
Verizon Communications Inc. VZ reported mixed third-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 434,000.
Verizon witnessed solid traction in the wireless business with 100,000 total postpaid phone net additions in the quarter along with retail postpaid net additions of 581,000. This buoyed the shares in pre-market trading.
Net Income
On a GAAP basis, net income in the quarter was $4,884 million or $1.13 per share compared with $5,024 million or $1.17 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 $1.22 compared with $1.32 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents.
Verizon Communications Inc. Price and EPS Surprise
Verizon Communications Inc. price-eps-surprise | Verizon Communications Inc. Quote
Revenues
Quarterly total operating revenues decreased to $33,336 million from $34,241 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 2.3% year over year to $25,257 million, as higher service revenues were more than offset by lower equipment revenues in the quarter. However, it exceeded our revenue estimate of $24,008 million for the segment led by solid wireless momentum.
Service revenues were up 2.3% to $18,850 million, while wireless equipment revenues slumped 11.8% to $4,902 million. Other revenues totaled $1,505 million, down 19.1% year over year.
The segment recorded 51,000 wireless retail postpaid phone net losses and 207,000 wireless retail prepaid net losses in the quarter. Wireless retail postpaid churn was 1.04%, while retail postpaid phone churn was 0.85%. The company recorded 69,000 Fios Internet net additions as high demand for reliable fiber optic broadband was spurred by higher video consumption. Fixed wireless broadband net additions were 251,000 for the quarter. However, Verizon registered 78,000 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 2.7% to $7,547 million on lower operating expenses with a margin of 29.9%, up from 28.4% in the year-ago quarter. EBITDA increased 2.2% to $10,819 million with a margin of 42.8% compared with 40.9% in the prior-year quarter due to lower costs of wireless equipment.
Business: The segment revenues were down 4% to $7,527 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 $7,694 million largely due to challenging macroeconomic conditions.
The segment had 330,000 wireless retail postpaid net additions in the quarter, including 151,000 postpaid phone net additions. Wireless retail postpaid churn was 1.47%, while retail postpaid phone churn was 1.14%. Fixed wireless broadband net additions were 133,000 for the quarter. Operating income declined to $539 million from $698 million in the year-ago quarter with respective margins of 7.2% and 8.9%. EBITDA was down 6.2% to $1,666 million owing to decline in high margin wireline revenues for a margin of 22.1% compared with 22.7% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses decreased 1.8% year over year to $25,863 million, while operating income was down 5.3% to $7,473 million. Consolidated adjusted EBITDA improved marginally to $12,238 million from $12,218 million for respective margins of 36.7% and 35.7%.
Cash Flow & Liquidity
Verizon generated $28,798 million of net cash from operating activities in the first nine months of 2023 compared with $28,199 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 $6,684 million for the quarter compared with $5,214 million in the prior-year period.
As of Sep 30, 2023, the company had $4,210 million in cash and cash equivalents with $134,441 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 at the higher end of its earlier guided range of $18.25 billion and $19.25 billion, while cash flow is likely to be in the range of $36.25 billion and $37.25 billion.
Zacks Rank & Stock to Consider
Verizon currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some better-ranked stocks from the broader industry.
Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 18.7% and delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Bandwidth Inc. BAND, carrying a Zacks Rank #2, is another key pick from the broader industry. It delivered an earnings surprise of 372.9%, on average, in the trailing four quarters.
Headquartered in Raleigh, NC, Bandwidth operates as a Communications Platform-as-a-Service provider, offering avant-garde software application programming interfaces for voice and messaging services. It is the only application programming interface platform provider that owns a Tier 1 network with enhanced network capacity, primarily catering to business enterprises.
United States Cellular Corporation USM, carrying a Zacks Rank #2, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve efficiency of government operations.
U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.
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