ii view: Q1 earnings for income stock Verizon beat forecasts

First-quarter results to 31 March

• Revenue up 0.2% to $33 billion (£26.7 billion)
• Adjusted earnings per share down 4% to $1.15 per share
• Quarterly dividend unchanged from the previous quarter at 66.5 US cents per share (53.9p)
• Unsecured debt of $128.4 billion (£104 billion), down $3.6 billion year-over-year

Chief Executive Hans Vestberg said:

Our strong results show that our team is delivering. Our performance in the first quarter
sets us up for a successful 2024. We are on track to meet our financial guidance.” 

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ii round-up:

Telecom giant Verizon Communications Inc (NYSE:VZ) today detailed earnings which beat Wall Street forecasts, aided by reduced subscriber losses at its Consumer Wireless division. 

Streaming bundles offering discounted prices for services such as Netflix Inc (NASDAQ:NFLX) and Warner Bros Discovery’s Max helped its Consumer business post its best first-quarter performance since 2018. Group-wide adjusted earnings per share down 4% year-over-year to $1.15 exceeded analyst forecasts of a fall to $1.12.  

Shares in the Dow Jones 30 company, which came into this latest news up around 7% year-to-date, initially rose 2% in US trading before drifting back to trade down by a similar amount. That’s better than a near 2% fall for rival AT&T Inc (NYSE:T) so far in 2024 and in comparison to a 1% gain for the Dow Jones itself.

Formerly Bell Atlantic, Verizon is today headquartered in New York and employs around 105,000 people. Consumer mobile phone subscriber losses of 158,000 marked an improvement from the 263,000 lost in the first quarter of 2023. 

Consumer related revenues rose 0.8% from a year ago to $25.1 billion, aided by  price increases, although hindered by reduced sales for mobile phones as customers continued to keep existing phones for longer. 

Sales at its Business-related division fell 1.6% year-over-year to $7.4 billion, with losses in new equipment revenue more than countering increased service-related income.   

In late February, Verizon declared a quarterly dividend of 66.5 cents per share, unchanged from the previous quarter. Second-quarter results are scheduled for 22 July. 

ii view:

Verizon provides data, video and voice services and solutions across its fixed and mobile networks. It operates via the two divisions of Consumer and Business, with Consumer accounting for just over three-quarters of total sales. Group goals include growing wireless service revenue, increasing free cash flow, and maintaining a healthy balance sheet.  

For investors, competition from rivals such as T-Mobile US Inc (NASDAQ:TMUS) is pressuring consumer mobile customer numbers. Heightened borrowing costs leave less room for other spending such as that for communication services and new mobile phones. Costs for businesses generally remain elevated, while generating a return on its major 5G investments continues to occupy management time.

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On the upside, initiatives such as bundled and flexible mobile plans have improved Verizon’s competitive position in relation to rivals. A drive to increase efficiency continues, with cost savings of between $2 billion and $3 billion targeted through to 2025. The pandemic has arguably added to the need for fast data from more locations, while a forecast price/earnings (PE) ratio below both the three- and 10-year average suggests the shares are not expensive.

On balance, and while competition for mobile customers remains intense, a prospective dividend yield of over 6% rewards investors while they wait for a sustained recovery to be established.  

Positives

• Focus on costs 
• Attractive dividend (not guaranteed)

Negatives:

• High competition
• Unsecured debt of $128 billion

The average rating of stock market analysts:

Strong hold