Verizon Communications (VZ – Free Verizon Stock Report), the telecommunications giant and Dow-30 component, reported second-quarter earnings of $1.20 a share, a nickel above our estimate and a hefty 25% higher than the year-ago result, on a solid 5.4% top-line advance. Surprisingly, investors seemed unfazed by the company's good fortune, and Verizon stock was little changed on the news.
Thankfully, the tides seem to be turning for Verizon. Throughout much of last year, we warned that the company's bottom line was under pressure due to the combined effects of the April, 2016 sale of its 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. However, Verizon started off 2018 on a high note, with VZ Wireless reporting a 4.7% increase in first-quarter revenues, the company's second year-over-year wireless revenue growth in two years. And in the June interim, the good news continued, with VZ Wireless posting a 5.5% jump in year-over-year revenues. The percentage of phone activations on device payment plans was 82%, compared to 81% in the first quarter of this year and 75% in the same period last year. What's more, service revenues, which had been declining of late, grew 0.8% year over year during the second quarter. VZ Wireless added 531,000 retail postpaid net additions during the June interim (compared to 614,000 such connections this time last year), bringing Verizon's total number of retail connections to 111.6 million, up 2.3% year over year.
Separately, total revenues for the Wireline division's FiOS fiber-optic-based services were up 2.0% year over year, thanks to solid demand for high-quality broadband service. We would be remiss if we did not note that Verizon added a net 43,000 FiOS Internet connections, yet lost 37,000 FiOS Video connections during the June interim, due to an ongoing shift away from traditional linear video bundles.
Last year, Verizon announced a goal of achieving $10 billion in total cash savings over the next four years. This program, which includes zero-based budgeting, has yielded about $500 million in cash savings on a year-to-date basis, and is on schedule to meet management's goals, which would certainly augur well for the company's bottom line. This, in conjunction with Verizon's recent performance, has led us to up our earnings estimates for this year and next by a nickel a share, to $4.65 and $4.75, respectively.
Finally, keep in mind that a changing of the guard is in the works at Verizon. To wit, in late June, the company named Chief Technology Officer Hans Vestberg as its new CEO. Mr. Vestberg joined Verizon a year ago, after a six-year stint at communications equipment maker Ericsson (ERIC). At Verizon, he headed a group responsible for building out the company's fiber network infrastructure. Therefore, we would not be surprised to see Verizon focusing more on building the next-generation 5G network, as opposed to expanding further into media content. Notably, current CEO Lowell McAdam said it was the perfect time to hand over the reins, as Verizon is at an “inflection point”', holding all the components it needs for 5G, such as fiber and spectrum. Mr. Vestberg will become CEO effective August 1st, with Mr. McAdam serving as executive chairman of the board through the end of 2018, and non-executive chairman thereafter.
In summation, this blue chip stock remains a good choice for conservative investors, due to its well above-average dividend yield, Highest (1) Safety rank, and attractive appreciation potential 3 to 5 years hence.
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
