Verizon Communications Inc. (NYSE:VZ) reported mixed financial numbers in the fourth quarter of 2017. While the top line beat the Zacks Consensus Estimate, the bottom line lagged the same.
Verizon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company continues to witness intense competition from rivals like AT&T Inc. (NYSE:T) , T-Mobile US Inc. (NYSE:T) and Sprint Corporation (NYSE:S) in the highly saturated domestic wireless market.
Net Income
Quarterly-GAAP net income was $18,783 million compared with $4,600 million in the year-ago quarter. Adjusted earnings per share of 86 cents lagged the Zacks Consensus Estimate of 88 cents.
Revenue
Total revenues increased 5% year over year to $33,955 million, which beat the Zacks Consensus Estimate of $33,145.7 million.
Operating Metrics
Total operating expenses in the quarter under review were $29,162 million, up 19.9% year over year. Operating income totaled $4,793 million, down 40.3% year over year.
Cash Flow and Liquidity
As of Dec 31, 2017, Verizon generated $25,305 million of cash from operating activities compared with $22,810 million in the year-ago quarter.
At the end of the reported quarter, Verizon had $2,079 million of cash and cash equivalents and $113,642 million in long-term debts compared with $2,880 million and $105,433 million, respectively, at the end of 2016.
Wireless Segment
Total revenues were $23,771 million, up 1.7% year over year. Service revenues dropped 2.9% to $15,880 million. Equipment revenues increased 12.9% to $6,475 million. Other revenues totaled $1,416 million, up 9.1%.
Operating expenses declined 2.4% to $16,653 million. Operating income improved 12.8% to $7,118 million. Quarterly operating income margin was 29.9% compared with 27.0% in the year-ago quarter.
Segment EBITDA increased 9.6% to $9,462 million. EBITDA margin was 39.8% compared with 36.9% in the prior-year quarter.
As of Dec 31, 2017, Verizon had 116.257 million retail subscribers, up 1.8% year over year. Of the total, retail postpaid subscriber count was 110.854 million, up 1.9%. Meanwhile, retail prepaid user count was 5.403 million, down 0.8%. In the reported quarter, the company gained 1.174 million postpaid customers but lost 0.184 million prepaid customers.
Quarterly retail postpaid churn rate was 1.00% compared with 1.10% in the year-ago quarter. Total retail churn rate was 1.24% compared with 1.34% in the year-ago quarter. Of the total activated phones, smartphones accounted for 96.7% compared with 95.2% in the prior-year quarter. Retail postpaid ARPA (average revenue per account) was $135.78 compared with $141.89 in the year-ago quarter.
Wireline Segment
Total revenues in the segment were $7,617 million, up 0.1% year over year. Consumer retail revenues were down 1.4% to $3,188 million. Enterprise Solutions revenues inched up 0.4% to $2,285 million. Partner Solutions revenues were up 0.3% to $1,209 million. Business Markets revenues grossed $885 million, up 7.7%. Other revenues declined 30.6% to $50 million.
Operating expenses increased 3.9% to $7,555 million. Quarterly operating income was $62 million, down 81.6% year over year. Quarterly operating margin was 0.8% compared with 4.4% in the year-ago quarter.
Segment EBITDA fell 10.0% to $1,594 million. EBITDA margin was 20.9% compared with 23.3% in the year-ago quarter.
As of Dec 31, 2017, FiOS video subscriber base was 4.619 million (down 1.6% year over year). FiOS Internet subscriber count was 5.850 million (up 3.5%) and FiOS digital voice residence connections totaled 3.905 million (up 0.3%). During the quarter, Verizon lost 29,000 FiOS video subscribers and 15,000 FiOS digital voice residential connections while gaining 47,000 FiOS Internet subscribers.
High-speed internet connection dropped 19.9% year over year to 1.109 million while total broadband connection number was 6.959 million, down 1.1%. Primary residence switched access connections declined 16.2% to 2.708 million and Primary residence connections fell 7.2% to 6.613 million. Total retail residence voice connections declined 7.5% to 6.804 million and total voice connections contracted 8.0% to 12.821 million.
Outlook for 2018
On a GAAP basis, Verizon expects positive service revenue growth by the end of 2018 or early 2019. Capital spending for 2018 is expected in the range of $17.0 billion to $17.8 billion, including the commercial launch of 5G. The expected savings from tax reform will boost cash flow from operations by $3.5-$4.0 billion in 2018. This is expected to yield a 55-65% rise in 2018 EPS. The effective tax rate for 2018 is projected in the range of 24-26%.
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