Verizon (VZ) Q2 Results Likely To Be Hit By Labor Unrest

Yesterday, Lowell McAdam, CEO of Verizon Communications Inc. (NYSE:VZ) warned that the company’s second-quarter 2016 financial results may be affected by the ongoing strike of its wireline and cable TV workers which started from Apr 13, 2016.

Verizon and the striking unions, The Communications Workers of America (CWA) and International Brotherhood of Electrical Workers (IBEW), are currently at a stalemate over a new labor contract. The company’s wireline employees have been working out of contract since August last year.

Earlier this month, the U.S. Secretary of Labor Thomas Perez met with the Verizon CEO and the heads of the two unions that represent the company’s striking workforce. Perez requested both sides to sit at the negotiation table to resolve the issues. However, nothing fruitful has emerged so far.

The CWA said nearly 40,000 workers have gone on strike. The company however asserted that it is fully prepared for a strike and has trained thousands of its non-union employees to tackle the situation. Verizon has guaranteed full, uncompromised service to its customers during the strike period.

Despite this alternative arrangement, it seems that all is not going well with the company. McAdam stated that the company is currently on track with respect to repairing and maintenance issues of the existing installed bases. However, the number of new installations of FiOS high-speed Internet and FiOS pay-TV has dropped significantly.

As a result, the company may suffer high-speed broadband and pay-TV customer attrition. The situation may become even worse going forward if the strike continues for an indefinite period of time.

It is crucial for Verizon to ensure smooth operations and continuing service even in the face of a walkout. Cable and landline revenues, although not comprising a large share of the pie, come directly from Verizon’s business customers. In 2015, FiOS generated 29% of Verizon’s total revenue and slightly less than 7% of operating income.

Verizon is already facing severe competitive threat from its telecom rivals, AT&T Inc. (NYSE:T) , T-Mobile US Inc. (NYSE:T) and Sprint Corp. (NYSE:S) , and any disruption in services can prove to be fatal for the company. Only time will prove how sound the company’s Business Continuity Plans are to overcome such adversities. Verizon currently carries a Zacks Rank #3 (Hold).

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