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

Verizon Communications Inc. VZ reported relatively strong third-quarter 2021 results with the bottom line beating the 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 rest of the year driven by customer-centric business model and diligent execution of operational plans and revised its earlier guidance to better reflect the improving business conditions.

Net Income

On a GAAP basis, net income for the September quarter improved to $6,554 million or $1.55 per share from $4,504 million or $1.05 per share in the prior-year quarter buoyed by healthy top-line growth. GAAP earnings during the quarter included a pre-tax gain of $706 million due to the sale of Verizon Media to Apollo Global Management, Inc. APO. Excluding non-recurring items, non-GAAP net income for the reported quarter was $1.41 per share, which surpassed the Zacks Consensus Estimate by 5 cents.

Verizon Communications Inc. Price, Consensus and EPS Surprise

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

Revenues

Total quarterly operating revenues increased 4.3% year over year to $32,915 million and included two months of Verizon Media revenues as the sale closed on Sep 1. 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. The top line, however, missed the consensus estimate of $33,411 million.

Segment Results

Consumer: Total revenues from this segment increased 7.3% year over year to $23,328 million owing to solid wireless equipment revenues due to high activation levels. Service revenues were up 3.9% to $16,891 million, while wireless equipment revenues surged 33.1% to $4,530 million due to higher work-from-home-driven customer activities. Other revenues totaled $1,907 million, down 8.2% year over year.

Verizon offered various Mix and Match pricing in both wireless and home broadband plans. With most company-operated retail stores being fully operational and customer activities resuming to pre-pandemic levels, the company witnessed increased adoption of 5G devices and premium unlimited plans. More than 25% of wireless phone customers of the company had 5G-enabled devices during the quarter. Verizon recorded 423,000 wireless retail postpaid net additions in the quarter. This comprised 267,000 phone net additions and 223,000 other connected device net additions, partially offset by 67,000 tablet net losses. Total wireless retail postpaid churn was 0.84% while retail postpaid phone churn was 0.67%. The company recorded 98,000 Fios Internet net additions as high demand for high-quality reliable fiber optic broadband was spurred by increasing work-from-home trend. However, Verizon registered 68,000 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 2.1% to $7,590 million for operating margin of 32.5%, down from 34.2% in the year-ago quarter. Segment EBITDA increased 2% to $10,508 million, reflecting a margin of 45% compared with 47.4% in the prior-year quarter.

Business: Segment revenues were down 0.8% to $7,689 million owing to legacy wireline decline, as Verizon responded effectively to handle increased traffic needs while meeting a surge in demand for connectivity and devices for advanced communications, security and video products from business enterprises. The company recorded 276,000 wireless retail postpaid net additions in the quarter, including 162,000 phone net additions.

The segment’s operating income declined to $886 million from $923 million in the year-ago quarter for respective margins of 11.5% and 11.9%. Segment EBITDA were down 2.4% to $1,904 million for a margin of 24.8% compared with 25.2% in the year-earlier quarter.

Other Details

Total operating expenses increased 0.6% year over year to $24,010 million due to high infrastructure investments, while operating income increased 16% year over year to $8,905 million owing to higher revenues. Adjusted EBITDA improved to $12,263 million from $11,870 million for respective margins of 37.3% and 37.6%. During the quarter, Verizon formed a new business unit — Robotics Business Technology — to develop enterprise-grade solutions for aerial and ground robotics. The unit will provide comprehensive solutions that leverage Verizon’s 5G and mobile edge compute capabilities. The unit will provide connected robotics solutions to customers for indoor and outdoor use cases in manufacturing, construction, logistics and utilities, among others.

Cash Flow & Liquidity

For the first nine months of 2021, Verizon generated $31,162 million of net cash from operating activities compared with $32,472 million in the year-ago period. Free cash flow (non-GAAP) for the first nine months of 2021 was $17,301 million, down from $18,304 million in the prior-year period. As of Sep 30, 2021, the company had $9,936 million in cash and cash equivalents with $143,352 million of long-term debt.  

Guidance Up 

With a solid quarterly performance and healthy growth momentum, Verizon revised its earlier guidance for 2021 to better reflect the improving business conditions. The company presently expects adjusted earnings in the range of $5.35 to $5.40 per share, up from earlier projections of $5.25 to $5.35. Total wireless service revenues are likely to grow in the range of 4%, up from prior expectations of 3.5-4% growth. The company expects significant capital expenditures during the rest of the year due to continued expansion of 5G mmWave in new and existing markets, the densification of the 4G LTE wireless network to cater to huge traffic demands and the continued deployment of the fiber infrastructure. In addition, Verizon is likely to incur high expenses for the deployment of the C-Band 5G network across the country.

Zacks Rank & Stocks to Consider

Verizon carries a Zacks Rank #3 (Hold) at present. Some better-ranked stocks in the broader industry are Ooma, Inc. OOMA, sporting a Zacks Rank #1 (Strong Buy), and SeaChange International, Inc. SEAC, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ooma delivered an earnings surprise of 55.2%, on average, in the trailing four quarters.

SeaChange has a long-term earnings growth expectation of 10%. It delivered an earnings surprise of 28.9%, on average, in the trailing four quarters.


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Verizon Communications Inc. (VZ): Free Stock Analysis Report
 
Apollo Global Management, Inc. (APO): Free Stock Analysis Report
 
SeaChange International, Inc. (SEAC): Free Stock Analysis Report
 
Ooma, Inc. (OOMA): Free Stock Analysis Report
 
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