Verizon (VZ) Beats Q3 Earnings Estimates, Misses on Revenues

Zacks Equity Research
·5 min read

Despite coronavirus-induced turmoil, Verizon Communications Inc. VZ reported relatively healthy third-quarter 2020 results, with the bottom line comfortably beating the Zacks Consensus Estimate. This highlights a disciplined network strategy for long-term growth along with a focused roadmap for technology leadership. Verizon expects to witness strong 5G momentum heading into the fourth quarter of 2020 backed by customer-centric business model and diligent execution of operational plans.

Net Income

On a GAAP basis, net income for the September quarter was $4,504 million or $1.05 per share compared with $5,337 million or $1.26 per share in the prior-year quarter. The year-over-year decline is primarily attributable to top-line contraction. Excluding non-recurring items, non-GAAP net income for the reported quarter was flat at $1.25 per share and surpassed the Zacks Consensus Estimate by 3 cents.

Verizon Communications Inc. Price, Consensus and EPS Surprise

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

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


Quarterly aggregate operating revenues declined 4.1% year over year to $31,543 million. This was the result of substantial decline in wireless equipment revenues in the Consumer and Business segments, primarily due to limited customer engagement and the impact of COVID-19 on customer behavior. The top line missed the consensus estimate of $31,572 million.

Segment Results

Consumer: Total revenues fell 4.3% year over year to $21,736 million owing to significant fall in wireless equipment revenues due to low activation levels. Service revenues declined 1.1% to $16,255 million due to reduced roaming, usage and waived fees on account of COVID-19. Wireless equipment revenues fell 20.1% to $3,403 million due to lower customer activity. Other revenues totaled $2,078 million, up 3.1% year over year.

During the quarter, Verizon recorded 136,000 wireless retail postpaid net additions. This comprised 142,000 phone net additions and 113,000 tablet net losses, offset by 107,000 other connected device net additions. Postpaid smartphone net additions were 258,000 driven by new model launches and gradual reopening of all company-operated retail stores with all safety precautions. The total retail postpaid churn was 0.8% and the retail postpaid phone churn was 0.63%. The company recorded 139,000 Fios Internet net additions with increasing work-from-home trend.

Segment operating income declined 0.7% to $7,437 million for operating margin of 34.2%, up from 33% in the year-ago quarter. EBITDA was relatively flat at $10,299 million, reflecting a margin of 47.4% compared with 45.3% in the prior-year quarter.

Business: Revenues were $7,749 million, down 1.7% year over year. Verizon responded to the challenges of COVID-19, handling increased traffic needs while meeting a surge in demand for connectivity and devices. The company recorded 417,000 wireless retail postpaid net additions in the quarter. This comprised 141,000 phone net additions, 86,000 tablet net additions and 190,000 other connected device additions.

The segment’s operating income was $923 million compared with $977 million in the year-ago quarter for respective margins of 11.9% and 12.4%. Segment EBITDA declined 1.9% to $1,950 million for a margin of 25.2% − flat year over year.

Revenues from Verizon Media declined 7.4% to $1.7 billion driven by lower advertising due to the virus outbreak. However, Verizon Media continued to drive increased customer engagement on its owned and operated properties.

Other Details

Although total operating expenses decreased 3.4% year over year to $23,865 million, operating income declined 6.1% year over year to $7,678 million due to lower revenues. Adjusted EBITDA was $11,870 million with a margin of 37.6%.     

Cash Flow & Liquidity

In the first nine months of 2020, Verizon generated $32,472 million of net cash from operating activities compared with $26,748 million in the year-ago period. Free cash flow (non-GAAP) was $18.3 billion, up 27% year over year. As of Sep 30, the company had $8,983 million in cash and cash equivalents with $109,790 million of long-term debt. 

Guidance Updated 

Verizon updated its earlier guidance for 2020 based on the resilient earnings performance and projected trends. The company currently expects adjusted earnings per share growth between 0% and 2%, up from  earlier projections of -2% and 2%. Capital expenditure for full year 2020 is likely to be at the higher end of its previously guided range of $17.5-$18.5 billion.

Zacks Rank & Stocks to Consider

Verizon carries a Zacks Rank #3 (Hold), at present. Some better-ranked stocks in the broader industry are Cambium Networks Corporation CMBM, Altice USA, Inc. ATUS and Ooma, Inc. OOMA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cambium has a long-term earnings growth expectation of 20%. It delivered a positive earnings surprise of 126.4%, on average, in the trailing four quarters.

Altice has a VGM Score of A and has gained 10.4% in the past six months.

Ooma has a trailing four-quarter earnings surprise of 238.9%, on average.

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