Verizon (VZ) Beats Q1 Earnings on Solid Wireless Business
Verizon Communications Inc. VZ started 2018 on a positive note with a relatively healthy performance in the first quarter, primarily led by the wireless business. The bottom line also benefited from significant savings from the tax reform.
GAAP earnings for the reported quarter were $4,666 million or $1.11 per share compared with $3,553 million or 84 cents per share in the year-ago quarter. Excluding non-recurring items, adjusted earnings were $1.17 per share compared with 95 cents in the year-earlier quarter and comfortably exceeded the Zacks Consensus Estimate of $1.11.
Consolidated GAAP revenues increased 6.6% year over year to $31,772 million on the back of a solid performance in the wireless business. Excluding revenues from divested businesses, non-GAAP consolidated revenues were $29.9 billion, which missed the Zacks Consensus Estimate of $31,157 million.
Operating income improved 5.6% year over year to $7,349 million. EBITDA for the reported quarter were $11.7 billion, resulting in EBITDA margin of 36.7%.
Segment Performance: Wireless
Total revenues from this segment were $21,900 million, up 4.9% year over year. While service revenues declined 2.4% to $15,402 million, that from equipment increased 33.9% to $5,040 million. Other revenues totaled $1,458 million, up 9.1% year over year.
Operating income improved 13.8% to $8,049 million due to higher retail postpaid connections. Quarterly operating income margin was 36.8% compared with 33.9% in the year-ago quarter. Segment EBITDA increased 11.3% to $10,477 million, resulting in EBITDA margin of 47.8% compared with 45.1% in the prior-year quarter.
Verizon reported a net increase of 260,000 retail postpaid connections in first-quarter 2018. Quarterly retail postpaid churn rate improved to 1.04% compared with 1.15% in the year-ago quarter. Retail postpaid ARPA (average revenue per account) was $131.71 compared with $136.98 in the year-ago quarter.
Total revenues in the segment were $7,557 million, down 1.6% year over year owing to lower Consumer retail revenues (down 1.6% to $3,150 million) and Enterprise Solutions (down 3.1% to $2,240 million). Partner Solutions revenues also decreased 0.1% to $1,228 million, while Business Markets revenues declined 0.9% to $871 million. Other revenues improved 9.7% to $68 million.
Quarterly operating income was $69 million, down 66.5% year over year. Quarterly operating margin was 0.9% compared with 2.7% in the year-ago quarter. Segment EBITDA fell 4.6% to $1,603 million, resulting in EBITDA margin of 21.2% compared with 21.9% in the year-ago quarter.
Cash Flow and Liquidity
Verizon generated $6,648 million of cash from operating activities for the first three months of 2018 compared with $1,376 million in the year-ago quarter. At the end of the reported quarter, Verizon had $1,923 million of cash and cash equivalents and $112,734 million in long-term debts.
In order to strengthen its balance sheet and provide financial flexibility, Verizon made a discretionary contribution of $1.0 billion to improve the funded status of its pension plans. Consequently, Verizon anticipate having zero mandatory pension contributions until approximately 2026.
Outlook for 2018
For full year 2018, Verizon expects both GAAP revenues and adjusted earnings per share to increase by low single-digit percentage rates driven by expected savings from tax reform and higher cash flow from operations. Capital expenditures for 2018 are likely to be in the range of $17.0 billion to $17.8 billion.
We remain impressed with the healthy first-quarter results and bullish outlook of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the broader industry include Comtech Telecommunications Corp. CMTL, sporting Zacks Rank #1 (Strong Buy), and SITO Mobile, Ltd. SITO and PCTEL, Inc. PCTI, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Comtech Telecommunications has a long-term earnings growth expectation of 5%. It delivered an average positive earnings surprise of 111.4% in the trailing four quarters, beating estimates in each.
SITO Mobile has a long-term earnings growth expectation of 25%. It delivered an average positive earnings surprise of 111.4% in the trailing four quarters, beating estimates in each.
PCTEL delivered an average positive earnings surprise of 17.9% in the trailing four quarters, beating estimates twice.
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