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Verizon (VZ) Q1 Earnings Beat on Solid Wireless Traction

Verizon Communications Inc. VZ started 2021 on a strong note, reporting relatively solid first-quarter results with the top and bottom line beating the respective Zacks Consensus Estimate. Backed by a disciplined network strategy for long-term growth along with a focused roadmap for technology leadership, the company witnessed a healthy demand curve across core businesses. Verizon expects to continue this momentum throughout the year and beyond driven by customer-centric business model and diligent execution of operational plans.

Net Income

On a GAAP basis, net income for the March quarter improved to $5,378 million or $1.27 per share from $4,287 million or $1.00 per share in the prior-year quarter buoyed by modest top-line growth. Excluding non-recurring items, non-GAAP net income for the reported quarter was $1.31 per share, which surpassed the Zacks Consensus Estimate by a couple of cents.

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

Revenues

Total quarterly operating revenues increased 4% year over year to $32,867 million with growth across all the business segments. Driven by strength across core business verticals and strong demand for seamless broadband connectivity, Verizon recorded healthy wireless service revenue growth and solid performance within the fiber optic service (Fios) unit. In addition, the company witnessed a steady recovery in wireless equipment revenues and uptick in advertising that fueled a robust Verizon Media performance. The top line beat the consensus estimate of $32,440 million.

Segment Results

Consumer: Total revenues from this segment increased 4.7% year over year to $22,798 million owing to solid wireless equipment revenues due to high activation levels. Service revenues were up 1.4% to $16,569 million while wireless equipment revenues surged 24.1% to $4,192 million due to higher work-from-home-driven customer activities. Other revenues totaled $2,037 million, down 0.5% year over year.

During the quarter, Verizon recorded 326,000 wireless retail postpaid net losses. This comprised 225,000 phone net losses and 171,000 tablet net losses, offset by 70,000 other connected device net additions. Total retail postpaid churn was 0.97% while retail postpaid phone churn was 0.77%. The company recorded 98,000 Fios Internet net additions with increasing work-from-home trend. However, Verizon registered 82,000 Fios Video net losses in the quarter, reflecting the ongoing shift from traditional linear video to over-the-top offerings. Nevertheless, solid broadband subscriber growth is likely to drive segment revenues in the near future as the company expanded Fios Forward to support digital inclusion and provide opportunities for underserved households to thrive in the digital world.

Segment operating income improved 3.3% to $7,519 million for operating margin of 33%, down from 33.5% in the year-ago quarter. Segment EBITDA increased 2.8% to $10,380 million, reflecting a margin of 45.5% compared with 46.4% in the prior-year quarter.

Business: Segment revenues were up 1.3% to $7,781 million as Verizon responded effectively to the challenges of COVID-19, handling increased traffic needs while meeting a surge in demand for connectivity and devices. The company recorded 156,000 wireless retail postpaid net additions in the quarter. This comprised 47,000 phone net additions and 79,000 tablet net additions.

The segment’s operating income declined to $899 million from $954 million in the year-ago quarter owing to high operating expenses for respective margins of 11.6% and 12.4%. Segment EBITDA were down 2.8% to $1,912 million for a margin of 24.6% compared with 25.6% in the year-earlier quarter.

Revenues from Verizon Media were up 10.4% to $1.9 billion driven by strong advertising trends. Notably, advertising revenues improved 26% year over year as live sports and events resumed in the quarter.

Other Details

Total operating expenses remained relatively flat at $25,097 million, while operating income increased 18.1% year over year to $7,770 million owing to higher revenues. Adjusted EBITDA improved to $12,167 million from $11,924 million for respective margins of 37% and 37.7%. In order to expand coverage and improve connectivity, Verizon acquired 161MHz of mid-band spectrum in the C-Band auction during the quarter for a total consideration of $45.5 billion. These airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in both rural and urban areas.

Cash Flow & Liquidity

For the first three months of 2021, Verizon generated $9,694 million of net cash from operating activities compared with $8,824 million in the year-ago period driven by strength in business framework and operational discipline. Free cash flow (non-GAAP) was $5.2 billion, up from $3.6 billion in the prior-year period. As of Mar 31, 2021, the company had $10,205 million in cash and cash equivalents with $149,700 million of long-term debt.

Guidance Reiterated

Verizon reiterated its earlier guidance for 2021 and continues to expect adjusted earnings in the range of $5.00 to $5.15 per share. While service and other revenues are likely to grow in excess of 2%, wireless service revenues are expected to grow more than 3%. Capital expenditure is likely to be $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, sporting a Zacks Rank #1 (Strong Buy), and Ooma, Inc. OOMA and Corning Incorporated GLW, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cambium has a long-term earnings growth expectation of 20%. It delivered a positive earnings surprise of 128%, on average, in the trailing four quarters.

Ooma delivered a positive earnings surprise of 163.7%, on average, in the trailing four quarters.

Corning has a long-term earnings growth expectation of 17.1%. It delivered a positive earnings surprise of 41.6%, on average, in the trailing four quarters.

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Verizon Communications Inc. (VZ) : Free Stock Analysis Report

Corning Incorporated (GLW) : Free Stock Analysis Report

Ooma, Inc. (OOMA) : Free Stock Analysis Report

Cambium Networks Corporation (CMBM) : Free Stock Analysis Report

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