A month has gone by since the last earnings report for Verizon Communications (VZ). Shares have lost about 1.5% in that time frame, 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 its most recent earnings report in order to get a better handle on the important catalysts.
Verizon Beats on Q3 Earnings, Revenues Miss Despite Wireless Traction
Verizon recorded relatively healthy third-quarter results with adjusted earnings beating the Zacks Consensus Estimate but the top line missing the same.
The company recorded consolidated postpaid net additions of 349,000 in the quarter along with retail postpaid phone net additions of 239,000. Total broadband net additions for the quarter were 389,000, including 363,000 fixed wireless net additions.
Net Income
On a GAAP basis, net income in the quarter was $3.41 billion or 78 cents per share compared with $4.88 billion or $1.13 per share in the prior-year quarter. The year-over-year decrease was primarily attributable to a severance charge of $1.7 billion related to the voluntary separation program for select U.S.-based management employees as well as other headcount reduction initiatives. Excluding non-recurring items, quarterly adjusted earnings were $1.19 per share compared with $1.22 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by a penny.
Revenues
Quarterly total operating revenues remained flat at $33.33 billion as growth in service revenues and other was offset by lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades. The top line missed the consensus estimate of $33.53 billion.
Quarterly Segment Results
Consumer: Total revenues from this segment improved 0.4% year over year to $25.36 billion, as higher service revenues were partially offset by lower equipment revenues in the quarter. However, it missed our revenue estimate of $25.67 billion for the segment. Service revenues were up 2.2% to $19.26 billion, while wireless equipment revenues declined 8.6% to $4.48 billion. Other revenues totaled $1.62 billion, up 7.8% year over year.
The segment recorded 81,000 wireless retail postpaid phone net additions and 80,000 wireless retail prepaid net additions in the quarter. Wireless retail postpaid churn was 1.07%, while retail postpaid phone churn was 0.84%. The company recorded 39,000 Fios Internet net additions as high demand for reliable fiber optic broadband was spurred by higher video consumption. Fixed wireless broadband net additions were 209,000 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 increased 0.8% to $7.6 billion with a margin of 30%. EBITDA increased 1.8% to $11 billion with a margin of 43.4% compared with 42.8% in the prior-year quarter due to lower costs of wireless equipment.
Business: The segment revenues were down 2.3% to $7.35 billion due to lower wireline and wireless equipment revenues, partially offset by growth in wireless service revenue. It also was lower than our estimates of $7.36 billion largely due to challenging macroeconomic conditions.
The segment had 281,000 wireless retail postpaid net additions in the quarter, including 158,000 postpaid phone net additions. Wireless retail postpaid churn was 1.45%, while retail postpaid phone churn was 1.1%. Fixed wireless broadband net additions were 154,000 for the quarter. Operating income improved to $565 million from $539 million in the year-ago quarter with respective margins of 7.7% and 7.2%. EBITDA was down 3.7% to $1.61 billion owing to a decline in high-margin wireline revenues for a margin of 21.8% compared with 22.1% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses increased 6% year over year to $27.4 billion, while operating income declined 20.7% to $5.93 billion. Consolidated adjusted EBITDA increased to $12.49 billion from $12.24 billion led by wireless service revenue growth and perceived benefits from lower upgrade volumes for respective margins of 37.5% and 36.7%.
Cash Flow & Liquidity
Verizon generated $26.48 billion of net cash from operating activities in the first nine months of 2024 compared with $28.8 billion in the year-ago period. The decline was primarily due to higher working capital requirements owing to higher interests and higher taxes. Free cash flow was $5.96 billion for the quarter compared with $6.68 billion in the prior-year period. As of Sept. 30, 2024, the company had $4.99 billion in cash and cash equivalents with $128.88 billion of long-term debt.
Guidance Reiterated
For 2024, Verizon reiterated its earlier guidance and expects wireless service revenue growth in the range of 2%-3.5%. Adjusted EBITDA is likely to grow 1. The company expects adjusted earnings in the range of $4.50 to $4.70 per share. Capital expenditure is estimated to be within the range of $17 billion and $17.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Verizon has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Verizon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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