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Verizon (VZ) Beats on Q1 Earnings Despite Lower Revenues

Verizon Communications Inc. VZ reported mixed first-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 the best total broadband quarterly performance in over a decade with total broadband net additions of 437,000.

However, the Consumer wireless business struggled with 263,000 retail postpaid phone net losses in the quarter. This dragged the shares down in pre-market trading as investors probably expected healthy subscriber growth.

Net Income

On a GAAP basis, net income in the quarter was $5,018 million or $1.17 per share compared with $4,711 million or $1.09 per share in the prior-year quarter. The year-over-year increase despite top-line contraction was primarily attributable to high expenses in the year-ago quarter.

Excluding non-recurring items, quarterly adjusted earnings per share were $1.20 compared with $1.35 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by a penny.

Verizon Communications Inc. Price, Consensus and EPS Surprise

Verizon Communications Inc. price-consensus-eps-surprise-chart | Verizon Communications Inc. Quote


Quarterly total operating revenues decreased to $32,912 million from $33,554 million in the prior year owing to lower wireless equipment revenues driven by a challenging macroeconomic environment. The lower year-over-year revenue was also attributable to the shutdown of the company's 3G network, resulting in the removal of approximately 1.1 million retail connections. The top line missed the consensus estimate of $33,709 million.

Quarterly Segment Results

Consumer: Total revenues from this segment declined 1.7% year over year to $24,857 million, as higher service revenues were more than offset by lower equipment revenues in the quarter.

Service revenues were up 1.8% to $18,456 million, while wireless equipment revenues slumped 9.2% to $4,878 million. Other revenues totaled $1,523 million, down 15% year over year.

The segment recorded 263,000 wireless retail postpaid phone net losses and 351,000 wireless retail prepaid net losses in the quarter. Wireless retail postpaid churn was 1.05%, while retail postpaid phone churn was 0.84%. The company recorded 63,000 Fios Internet net additions as high demand for reliable fiber optic broadband was spurred by increasing work-from-home trend. Fixed wireless broadband net additions were 256,000 for the quarter. However, Verizon registered 74,000 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 declined 3% to $7,099 million with a margin of 28.6%, down from 28.9% in the year-ago quarter. EBITDA decreased 1.6% to $10,313 million with a margin of 41.5% compared with 41.4% in the prior-year quarter due to higher marketing expenses.

Business: The segment revenues were down 2.8% to $7,494 million due to lower wireline and wireless equipment revenues, partially offset by growth in wireless service revenue. The segment had 312,000 wireless retail postpaid net additions in the quarter, including 136,000 postpaid phone net additions. Wireless retail postpaid churn was 1.50%, while retail postpaid phone churn was 1.16%. Fixed wireless broadband net additions were 137,000 for the quarter. Operating income declined to $551 million from $673 million in the year-ago quarter with respective margins of 7.4% and 8.7%. EBITDA was down 5.1% to $1,645 million owing to higher subsidies for a margin of 22% compared with 22.5% in the year-earlier quarter.

Other Quarterly Details

Total operating expenses decreased 1.7% year over year to $25,328 million, while operating income was down 2.7% to $7,584 million. Consolidated adjusted EBITDA declined to $11,902 million from $12,032 million for respective margins of 36.2% and 35.9%.

Cash Flow & Liquidity

Verizon generated $8,289 million of net cash from operating activities in the quarter compared with $6,821 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 $2,331 million compared with $1,000 million in the prior-year period.

As of Mar 31, 2023, the company had $2,234 million in cash and cash equivalents with $140,772 million of long-term debt. Capital expenditure totaled $5,958 million, up from $5,821 million in prior-year period, driven by expenses related to C-Band deployment. The continued build out of OneFiber and C-Band spectrum expansion will expand the reach and capacity of its 5G Ultra Wideband network across the country.

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 between $18.25 billion and $19.25 billion.

Zacks Rank & Stock to Consider

Verizon currently has a Zacks Rank #3 (Hold).

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 the 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 14.2% and delivered an earnings surprise of 14.2%, 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.

Juniper Networks, Inc. JNPR carries a Zacks Rank #2. It has a long-term earnings growth expectation of 7% and delivered an earnings surprise of 1.6%, on average, in the trailing four quarters.

Juniper is leveraging the 400-gig cycle to capture hyperscale switching opportunities inside the data center. The company is set to capitalize on the increasing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence.

Splunk Inc. SPLK, sporting a Zacks Rank #1, is another key pick. San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making.   

Splunk’s software offerings enable users to have deep insight of their data on a real-time basis, thereby making the operational decision-making process faster. It delivered a trailing four-quarter earnings surprise of 131.1%, on average. Splunk has a long-term earnings growth expectation of 24.1%.

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