Verizon (VZ – Free Verizon Stock Report), the telecommunications giant and Dow-30 component, reported first-quarter earnings of $0.95 a share, six cents below our estimate and 11 cents off the year-earlier result, on a 7.3% revenue decline. Nevertheless, investors seem unfazed, with Verizon stock down modestly on the news.
Truth be told, this underwhelming performance comes as no startling surprise. Indeed, in our March full-page review, we warned that the outlook for the next couple of years was nothing to write home about, due to the combined effects of the April 1, 2016 sale of the company's high-margined wireline operations in California, Florida, and Texas to Frontier Communications (FTR), the ongoing shift of wireless customers to device payment plans, and the ramping up of its new business model. Notably, in the March period, VZ Wireless posted a 5.1% drop in first-quarter revenues, due to more customers continuing to choose unsubsidized device payment plans, decreased overage revenues, lower postpaid customers, and continued promotional activity. The percentage of phone activations on device payment plans was about 76% in the quarter, compared to 77% in the December period. Management expects this percentage to more or less remain constant during the second quarter of this year. Verizon Wireless reported a net decline of 307,000 retail postpaid connections in the March quarter, well below our expectation, bringing Verizon's total number of retail postpaid connections to 108.5 million, up 1.2% year over year. It certainly seems that VZ Wireless is feeling a bit of a pinch from a rather competitive marketplace. Separately, total revenues for the Wireline division's FiOS fiber-optic-based services were up 4.7% year over year, the result of solid demand in both consumer and business markets.
Separately, the company has quite a few irons in the acquisition fire. To wit, it closed on the purchase of XO Communications during the first quarter, while the sale of its data centers to Equinix (EQIX) is slated to be completed in the June interim. Lastly, the terms of the Yahoo! (YHOO) acquisition were recently amended, with the purchase price pared by $350 million, given recent data breaches at Yahoo. This $4.48 billion deal is now expected to close in the second quarter as well.
On a final note, we have pared a nickel from our 2017 share-net estimate, which now stands at $3.85, on a relatively flat year-over-year top-line comparison. Nevertheless, this blue chip stock remains a good selection for conservative portfolios, due to its well above-average dividend yield, Highest (1) Safety rank, and alluring 3- to 5-year appreciation potential.
About The Company: Verizon Communications was created by the merger of Bell Atlantic and GTE in June of 2000. It is a diversified telecom company with a network that covers a population of about 290 million and provides service to nearly 91.2 million. In the last few years, has acquired MCI (1/06) and Alltel (1/09). The company is also the largest provider of print and on-line directory information. Has a wireline presence in 28 states & Washington, D.C. and a wireless presence in every U.S. state & D.C., as well as operations in 19 countries.
