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Pedestrians pass a boarded up Verizon store in Times Square New York, U.S., on Tuesday, June 9, 2020.
Nina Westervelt/Bloomberg
Verizon Communications
’ second-quarter results on Friday morning showed that the U.S. wireless business isn’t a bad place to be during a pandemic. Results were down slightly from a year ago, and management felt confident enough to maintain their guidance for the rest of the year despite the uncertain outlook. The overall report didn’t include any surprises or huge changes—but for an unprecedented three-month period, boring is good.
Verizon’s (ticker: VZ) second-quarter adjusted earnings per share came in at $1.18, ahead of analysts’ consensus estimate of $1.15 but down from $1.23 in the same period last year. Adjustments include charges related to Verizon’s pension plan and early debt retirement. Without those, Verizon’s generally accepted accounting principles (GAAP) earnings per share were $1.13, versus 95 cents a year ago. Its adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, fell about 5% to $11.5 billion, matching expectations.
Verizon stock rose in trading Friday morning, up 1.7% to about $57.
Second-quarter revenue was $30.4 billion, also down roughly 5% from a year earlier, but ahead of Wall Street’s $29.9 billion consensus forecast. Free cash flow in the quarter was about $10.2 billion and Verizon spent about $4.6 billion on capital expenditures. It also reduced its net debt by $5.7 billion last quarter, to $105 billion with over $10 billion secured. That’s a lot of debt, but telecom businesses tend to be comfortable with carrying large borrowings. Verizon is also a huge company: Its net unsecured debt to adjusted Ebitda ratio ticked down to 2, from 2.1 at the end of the first quarter.
On Thursday,
AT&T
(T) also reported second-quarter results. Like Verizon, its wireless phone business proved resilient as the coronavirus outbreak heavily impacted consumers and the economy. But AT&T’s media and pay-TV businesses didn’t hold up nearly as well. Luckily for Verizon, the company hasn’t diversified as much as AT&T beyond wireless.
“Regardless of how results match up against expectations for Verizon, these results should be seen as good compared to what AT&T reported yesterday,” wrote New Street Research analyst Jonathan Chaplin on Friday morning. “Sometimes, you don’t have to outrun the bear…”
Chaplin rates Verizon at Neutral with a $54 price target.
Verizon’s consumer segment held up slightly better than its business segment. Verizon’s consumer revenues were down 4% to $21.1 billion, as operating income fell 3.7% to $7.1 billion. Verizon’s business sales slipped 3.7% to $7.5 billion, but operating earnings dropped 11.7% to $946 million. Advertising-driven revenues at Verizon Media Group—which includes online brands such as Yahoo! and HuffPost—tumbled almost 25% to $1.4 billion.
Store closures and customers sheltering at home in the second quarter kept a lid on Verizon’s churn, or the percentage of subscribers who cancel their plans every month. The metric came in at 0.78% for Verizon’s postpaid wireless subscribers, meaning those who pay a monthly bill. Lower churn means lower customer acquisition costs required, and increases the lifetime value of Verizon’s subscriber base. The whole industry is benefiting from that: AT&T also reported a meaningful decrease in churn on Thursday.
Verizon added 352,000 total postpaid wireless subscribers in the second quarter, handily beating Wall Street’s consensus estimate of a 19,000-subscriber increase and AT&T’s 154,000-subscriber loss. Prepaid net adds were 12,000, missing analysts’ 144,000-gain forecast. CFO Matt Ellis noted on Friday morning’s earnings call that Verizon saw a meaningful increase in customer activity at the end of the second quarter, and that Verizon expects to have reopened all of its stores by the end of July. The company expects overall wireless revenue to be flat to down 1% in the third quarter.
Verizon management reiterated their 2020 guidance offered in late April. Management expects Verizon’s 2020 adjusted earnings per share to see between a 2% decline and a 2% rise from 2019’s $4.81 per share. Verizon also expects total 2020 capital expenditures of between $17.5 billion to $18.5 billion.
The second half of the year is all about next-generation 5G networks for Verizon, said CEO Hans Vestberg. The company expects to launch coverage in several new markets. New phones that support 5G are also expected, including a 5G iPhone from
Apple
(AAPL). Verizon says that it expects to first see a material impact on its revenues from 5G next year.
Analysts are generally neutral on Verizon stock. Thirty-one percent have a Buy or equivalent rating, while 69% recommend a Hold. Zero analysts rate Verizon at Sell. Their average target price is $60.41. Verizon stock also sports a 4.4% annual dividend yield.
Verizon stock had lost 6.1% after dividends through Thursday’s close, versus a 1.2% return for the
S&P 500.
Shares of rival AT&T were down 19.7% after dividends year to date, weighed down by its cyclical media exposure in addition to a relatively resilient wireless business.
T-Mobile US (TMUS)
shares have jumped more than 33%, boosted by the approval of its acquisition of Sprint, which closed on April 1.
Write to Nicholas Jasinski at [email protected]
