Verizon Communications (VZ – Free Verizon Stock Report), the telecommunications giant and Dow-30 component, reported 2019 first-quarter earnings of $1.20 a share, four cents above our estimate and three cents better than the year-ago figure, on a modest 1.1% top-line advance. It is important to note that during the first quarter, Verizon's performance felt the effects of a reduction in benefits from the adoption of a revenue recognition standard, primarily due to the deferral of commission expense, and the adoption of a lease accounting standard. The combined impact pared earnings by about $0.04 a share. Despite the better-than-expected bottom-line performance, investors do not seem overly enthused, with the stock down modestly on the news.
A lion's share of the good news is attributable, as is typically the case, to Verizon Wireless. To wit, the division reported a 3.7% uptick in first-quarter revenue, the sixth time the company has reported year-over-year wireless revenue growth in two years. In addition, service revenues, which were in a decline last year, were up a solid 4.4% in the March period, driven by customer step-ups to higher-priced plans, contributions from strong retail postpaid net additions in the fourth quarter of 2018, and an increase in connections per account. However, VZ Wireless reported a modest 61,000 retail postpaid net additions in the first quarter, consisting of 44,000 phone net losses and tablet net losses of 156,000, offset by 261,000 other connected device net additions, primarily wearables. As a result, Verizon Wireless' total number of retail connections stood at 117.9 million at the end of quarter, up 1.5% year over year.
Separately, total revenues for the Wireline division was down 3.9% year over year, as growth in high-quality fiber products was offset by pricing pressures on legacy products and technology shifts. However, total FiOS revenues grew 3.6%, with Verizon adding a net 52,000 FiOS Internet connections and losing a net 53,000 FiOS Video connections, which comes as no surprise given the shift away from traditional linear video bundles.
Verizon has earmarked approximately $17 billion to $18 billion for capital expenditures in 2019, due to the launch and continued buildout of its 5G Ultra Wideband network, the growth in data and video traffic on the company's 4G LTE network, the deployment of significant fiber in markets nationwide, and the upgrade to Verizon's Intelligent Edge Network. Nevertheless, in 2018, the company announced a goal of achieving $10 billion in total cash savings by 2021. Thus far, the initiative has yielded roughly $3.0 billion of cumulative cash savings since the program began. What's more, by the end of the March period, Verizon completed the first two phases of its Voluntary Separation Program and realized about $180 million in expense savings.
In summation, we have upped our 2019 earnings estimate by a nickel, to $4.70 a share, on a low-single-digit top-line improvement. Moreover, this blue chip stock remains a good choice for conservative investors, 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 298 million and provides service to nearly 98.2 million. In the decade or so, it has acquired MCI (1/06), Alltel (1/09) and Yahoo! (6/17). 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.
- Kenneth A. Nugent
