Verizon Communications Inc. (NYSE:VZ) has reported its second-quarter 2023 results, showing a mixed performance with earnings beating the Consensus Estimate, while revenue fell short. The company is witnessing significant adoption of 5G technology and experiencing momentum in fixed wireless broadband. Additionally, the strong demand for Fios and fixed wireless products contributed to healthy broadband performance, with a total of 418,000 broadband net additions.
The wireless business demonstrated solid traction, adding 8,000 total postpaid phone net additions in the quarter, along with 612,000 retail postpaid net additions. These positive figures had a positive impact on the company’s pre-market trading, buoying investor confidence in Verizon stock.
Net Income
On a GAAP basis, net income for the quarter was $4,766 million, or $1.10 per share, compared to $5,315 million, or $1.24 per share, in the same period last year. Despite lower operating expenses, the year-over-year decrease in net income was mainly due to a contraction in the top line.
Adjusted Earnings
Excluding non-recurring items, the company reported adjusted earnings per share of $1.21, surpassing the prior-year quarter’s $1.31 per share. The adjusted earnings per share beat the Consensus Estimate by 4 cents.
Revenues
Quarterly total operating revenues declined to $32,596 million from $33,789 million in the previous year. The decrease was primarily driven by lower wireless equipment revenues, attributed to a challenging macroeconomic environment and lower postpaid phone upgrades. The company’s top-line figure missed the consensus estimate of $33,390 million.
Segment Results
Consumer Segment: Total revenues from the consumer segment declined 4.1% year-over-year to $24,558 million. Higher service revenues were more than offset by lower equipment revenues in the quarter. Nevertheless, the segment exceeded revenue estimates for the quarter, driven by strong wireless momentum.
Service revenues for the segment were up 2.7% to $18,641 million, while wireless equipment revenues slumped 22.4% to $4,430 million. Other revenues totaled $1,487 million, marking a 14.9% year-over-year decline.
The consumer segment recorded 136,000 wireless retail postpaid phone net losses and 304,000 wireless retail prepaid net losses during the quarter. Wireless retail postpaid churn was 0.95%, while retail postpaid phone churn was 0.76%. The company also achieved 51,000 Fios Internet net additions, driven by increasing demand for reliable fiber optic broadband due to the work-from-home trend. Fixed wireless broadband net additions for the quarter were 251,000. However, Verizon faced 69,000 Fios Video net losses, reflecting the ongoing shift from traditional linear video to over-the-top offerings.
The segment’s operating income improved by 2.5% to $7,330 million, and its margin increased to 29.8%, up from 27.9% in the year-ago quarter. EBITDA also rose 2.1% to $10,577 million, with a margin of 43.1%, compared to 40.5% in the prior-year quarter, due to lower costs of wireless equipment.
Business Segment: The business segment reported revenues of $7,483 million, a decline of 1.9%, mainly due to lower wireline and wireless equipment revenues. However, growth in wireless service revenue partially offset this decline. The segment’s revenue was lower than expected, largely due to challenging macroeconomic conditions.
The business segment achieved 308,000 wireless retail postpaid net additions, including 144,000 postpaid phone net additions. Wireless retail postpaid churn was 1.48%, while retail postpaid phone churn was 1.10%. Fixed wireless broadband net additions for the quarter reached 133,000. Operating income for the segment declined to $533 million from $675 million in the year-ago quarter, resulting in respective margins of 7.1% and 8.9%. EBITDA also declined 6.5% to $1,636 million, primarily due to the decline in high-margin wireline revenues, resulting in a margin of 21.9%, compared to 22.9% in the year-earlier quarter.
Other Quarterly Details
Total operating expenses decreased 3.3% year-over-year to $25,376 million while operating income was down 4.4% to $7,220 million. Consolidated adjusted EBITDA improved to $11,971 million from $11,873 million, resulting in respective margins of 36.7% and 35.1%.
Cash Flow & Liquidity
Verizon’s net cash from operating activities in the first six months of 2023 was $18,020 million, compared with $17,665 million in the year-ago period. This improvement was primarily driven by working capital improvements due to lower inventory levels, fewer phone upgrades, and a modest improvement in customer payment patterns. Free cash flow for the quarter was $5,619 million, compared with $6,174 million in the prior-year period.
As of June 30, 2023, the company had $4,803 million in cash and cash equivalents and $137,871 million of long-term debt.
Guidance Reiterated
Verizon has reaffirmed its guidance for 2023, expecting wireless service revenue growth in the range of 2.5% to 4.5%. The company also projects adjusted EBITDA to be between $47 billion and $48.5 billion. Adjusted earnings per share are estimated to be in the range of $4.55 to $4.85, and capital expenditure is expected to be between $18.25 billion and $19.25 billion.
Verizon Stock Performance
Verizon stock has fallen by 14.7% year-to-date, while the S&P 500 has risen by 19.3% so far this year.
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