Verizon (VZ) Down 0.2% Since Last Earnings Report: Can It Rebound?

It’s been about a month since Verizon Communications (VZ) last reported earnings. Shares lost about 0.2% in that time, 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 the most recent earnings report in order to get a better handle on the key drivers.

Verizon beats first-quarter earnings estimates, loses revenue

Verizon started 2024 on a positive note, reporting relatively modest first-quarter results, with earnings exceeding the Zacks Consensus Estimate but top-line results falling short of that mark.

This quarter, the company recorded consolidated net increases in postpaid services of 253,000 and net losses on retail postpaid phones of 68,000. The total number of broadband network connections in this quarter was 389,000, including 354,000 fixed wireless network connections.

Net income

On a GAAP basis, net income for the quarter was $4,722 million, or $1.09 per share, compared to $5,018 million, or $1.17 per share, in the prior-year quarter. The year-on-year decline was primarily due to higher operating costs and interest costs. Excluding non-recurring items, adjusted quarterly earnings were $1.15 per share compared to $1.20 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.

Revenue

Quarterly total operating revenues increased to $32,981 million from $32,912 million in the prior year as a result of pricing actions, partially offset by lower wireless equipment revenues resulting from a challenging macroeconomic environment and lower post-paid handset upgrade fees. The top result missed the consensus estimate of $33,332 million.

Quarterly segment results

Consumer: Total revenues from this segment increased 0.8% year-over-year to $25,057 million as higher services revenues were partially offset by lower hardware revenues in the quarter. However, it fell short of our revenue estimates for this segment at $25,212 million.

Services revenue increased 2.9% to $18,998 million, while wireless equipment revenue decreased 8% to $4,490 million. Other revenues amounted to $1,569 million, up 3% year over year.

The segment reported a 158,000 net loss in retail postpaid wireless and a 216,000 net loss in retail prepaid for the quarter. Wireless postpaid retail churn was 1.03%, while postpaid phone retail was 0.83%. The company recorded 49,000 connections to its Fios internet network as strong demand for reliable fiber broadband was fueled by higher video consumption. The number of fixed wireless broadband connections for the quarter was 203,000. However, Verizon reported a net loss of 68,000 Fios Video for the quarter, reflecting the continued shift away from traditional linear video towards over-the-top offerings.

Segment operating income increased 3.8% to $7,372 million with a margin of 29.4%. EBITDA increased 3.6% to $10,681 million at a margin of 42.6% compared to 41.5% in the prior-year quarter due to lower wireless equipment costs.

Business: Segment revenues decreased 1.6% to $7,376 million due to lower wired and wireless equipment revenues, partially offset by increases in wireless services revenues. It was also lower than our estimate of USD 7,517 million, mainly due to difficult macroeconomic conditions.

In this quarter, this segment had 178,000 connections of wireless retail subscription networks, including 90,000 connections of subscription telephone networks. Wireless postpaid retail churn was 1.51%, while postpaid phone retail was 1.13%. The number of fixed wireless broadband connections in the quarter was 151,000. Operating income fell to $399 million from $551 million in the year-ago quarter, with margins of 5.4% and 7.4%, respectively. EBITDA declined 7.2% to $1,527 million due to a decline in high-margin wireline revenues, to a margin of 20.7% compared to 22% in the prior-year quarter.

The story continues

Other quarterly details

Total operating expenses increased 0.5% year over year to $25,460 million, while operating income decreased 0.8% to $7,521 million. Consolidated adjusted EBITDA increased to $12,072 million from $11,902 million driven by growth in wireless revenues and perceived benefits from lower upgrade volumes with margins of 36.6% and 36.2%, respectively.

Cash flow and liquidity

Verizon generated $7,084 million in net cash from operations in the quarter, compared to $8,289 million in the same period last year. The decline was primarily due to higher working capital requirements due to higher interest and a discretionary pension contribution of $365 million. Free cash flow was $2,708 million for the quarter, compared to $2,331 million in the prior-year period. As of March 31, 2023, the company had $2,365 million in cash and cash equivalents and $136,104 million in long-term debt.

Guidelines repeated

For 2024, Verizon maintained its previous guidance and expects wireless revenue growth in the range of 2% to 3.5%. Adjusted EBITDA is likely to increase 1. The company expects adjusted earnings per share to be in the range of $4.50 to $4.70. Capital expenditure is estimated at between USD 17 and 17.5 billion.

How have estimates changed since then?

Over the past month, investors have seen an upward trend in new estimates.

VGM results

At this point, Verizon has a solid growth score of B, although it lags slightly behind its Momentum Score with a C. However, the stock is rated an A for value, ranking in the top 20% for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. Notably, Verizon carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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