ii view: Verizon hindered by slow smartphone upgrades

Second-quarter results to 30 June

• Revenue up 0.6% to $32.8 billion (£25.3 billion)
• Adjusted earnings per share down 5% to $1.15 per share
• Quarterly dividend unchanged from the previous quarter at 66.5 US cents per share (51.2p)
• Unsecured debt of $125.3 billion (£96.5 billion), down $6.1 billion year-over-year

Chief Executive Hans Vestberg said:

“The sequential and year over year improvements in the second quarter were a
reflection of operational excellence and the moves we made to bring choice, value and control to our customers’ lives.”

“Our industry-leading network serves as a catalyst for how our millions of customers live their lives, and serves as the backbone for new and emerging technologies.”

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ii round-up:

Telecom giant Verizon Communications Inc (NYSE:VZ) today detailed more wireless subscribers than expected, but said growth in revenue was held back by customer reluctance to upgrade to new mobile phones. 

Monthly bill paying second-quarter retail wireless additions of 148,000 beat Wall Street hopes of 128,000, but group revenue growth of just 0.6% to $32.8 billion fell shy of the $33.04 billion estimated by analysts. 

Shares in the Dow Jones 30 company fell 4% in US trading having come into this latest news up 10% year-to-date. That’s similar to rivals AT&T Inc (NYSE:T) and T-Mobile US Inc (NASDAQ:TMUS) and ahead of a near 7% improvement for the Dow Jones index itself in 2024. 

Formerly Bell Atlantic, Verizon is today headquartered in New York and employs around 105,000 people. Revenue at its core Retail division climbed 1.5% from Q2 2023 to $24.9 billion, with gains in service revenues partially offset by a fall in wireless equipment sales. 

Sales at its Business focused division fell 2.4% from a year ago to $7.3 billion, with increased service revenues more than countered by a retreat in fixed line revenues. 

Overall adjusted earnings of $1.15 per share was down 6% on Q2 2023, matching Wall Street hopes and hindered by charges taken in relation to previous takeovers and staff pension adjustments. 

A second-quarter dividend of 66.5 cents per share remains unchanged from the prior first quarter. Third-quarter results are scheduled for 22 October.

ii view:

Verizon provides data, video and voice services and solutions across its mobile and fixed line networks. Group strategic targets include growing wireless service revenues, increasing free cash flow, and maintaining a healthy balance sheet.  

For investors, squeezed consumer spending and an arguable lack of recent smartphone innovation from the likes of Apple Inc (NASDAQ:AAPL) now look to be resulting in a reluctance by customers to upgrade their phones. Many businesses no longer use desktop work phones which shrinks the fixed line business. 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 helped Verizon’s competitive position. A drive to increase efficiency continues, with cost savings of $2-3 billion targeted through to 2025. The pandemic has arguably added to the need for fast data from more locations, while a forecast price/earnings ratio below both the three- and 10-year averages suggests the shares are not obviously expensive.

In all, and while intense competition for mobile customers persists, a forecast dividend yield of over 6% will likely buy the patience of some investors. 

Positives

• Focus on costs 
• Attractive dividend (not guaranteed)

Negatives:

• High competition
• Unsecured debt of $125 billion

The average rating of stock market analysts:

Strong hold