January 18, 2022

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Verizon (VZ) Tops Q2 Earnings Estimates Despite COVID-19 Woes

Verizon Communications Inc. VZ reported healthy second-quarter 2020 results, with the bottom and the top line beating their respective Zacks Consensus Estimate. This highlights the company’s disciplined network strategy for long-term growth along with strong operational performance. Verizon expects to see strong momentum heading into the second half of 2020.

Net Income

On a GAAP basis, net income in the June-end quarter was $4,700 million or $1.13 per share compared with $3,944 million or 95 cents per share in the prior-year quarter. The improvement can be attributable to lower other expenses and interest payments. Non-GAAP net income per share came in at $1.18 compared with $1.23 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 2 cents.

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

Revenues

Quarterly aggregate operating revenues declined 5.1% year over year to $30,447 million. This was the result of substantial declines in wireless equipment revenues in the Consumer and Business segments, primarily due to limited in-store engagement and the impact of COVID-19 on customer behavior. Nevertheless, the top line surpassed the consensus estimate of $29,910 million.

Segment Results

Consumer: Total revenues fell 4% year over year to $21,113 million. This was caused by a significant fall in wireless equipment revenues due to low activation levels. Service revenues declined 2.8% to $15,900 million due to reduced roaming, usage and waived fees on account of COVID-19. Wireless equipment revenues fell 17.8% to $3,209 million due to closed company-operated retail stores. Other revenues totaled $2,004 million, up 15% year over year.

During the quarter, Verizon recorded 72,000 wireless retail postpaid net additions. This comprised 97,000 phone net additions and 97,000 tablet net losses, offset by 72,000 other connected device net additions. Postpaid smartphone net additions were 199,000. The total retail postpaid churn was 0.69% and the retail postpaid phone churn was 0.51%. The company saw 10,000 Fios Internet net additions, as installations were limited due to restrictions on working inside customers’ homes.

The segment’s operating income declined 3.7% year over year to $7,064 million. The operating margin was 33.5%, slightly up from 33.4%. EBITDA came in at $9,913 million, reflecting a margin of 47% compared with the respective tallies of $10,217 million and 46.5% in the prior-year quarter.

Business: Revenues were $7,482 million, down 3.7% 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 280,000 wireless retail postpaid net additions in the quarter. This comprised 76,000 phone net additions, 61,000 tablet net additions and 143,000 other connected device additions.

The segment’s operating income was $946 million compared with $1,071 million in the year-ago quarter for respective margins of 12.6% and 13.8%. EBITDA declined 7.4% to $1,960 million for a margin of 26.2% compared with 27.3% in the prior-year quarter.

Revenues from Verizon Media were $1.4 billion, down 24.5% year over year. This was primarily as a result of COVID-19 related impacts. Verizon Media continued to drive increased customer engagement on its owned and operated properties.

Other Details

Total operating expenses reduced 4.7% year over year to $23,086 million. Overall, operating income declined 6.2% year over year to $7,361 million. Adjusted EBITDA was $11.5 billion with a margin of 37.9%.     

Cash Flow & Liquidity

In the first half of 2020, Verizon generated $23,552 million of net cash from operating activities compared with $15,836 million in the year-ago period. It ended first-half 2020 with free cash flow (non-GAAP) of $13.7 billion, up 74.1% year over year. As of Jun 30, the company had $7,882 million in cash and cash equivalents with $106,190 million of long-term debt. 

Guidance Reiterated 

Verizon has reiterated its previously-provided outlook for 2020. The company continues to expect adjusted earnings per share growth between -2% and 2%. Capital spending is likely to be in the 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 Turtle Beach Corporation HEAR, T-Mobile US, Inc. TMUS and Ooma, Inc. OOMA. While Turtle Beach and T-Mobile sport a Zacks Rank #1 (Strong Buy), Ooma carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Turtle Beach has a trailing four-quarter earnings surprise of 46.4%, on average.

T-Mobile has a trailing four-quarter earnings surprise of 19.4%, on average.

Ooma has a trailing four-quarter earnings surprise of 228.2%, on average.

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