Verizon's (VZ, Financial) Q2 Performance Overview
Verizon (VZ, Financial) delivered relatively healthy Q2 results, with adjusted EPS in line with consensus, surpassing retail postpaid phone subscriber estimates, and reiterating its FY24 guidance. The company's total wireless business, including Consumer and Business wireless segments, saw a 3.5% year-over-year revenue increase. Management noted that most pricing churn is behind them, maintaining a stable FY24 consumer postpaid phone churn outlook.
Why the Negative Market Reaction?
- Verizon reported Q2 earnings of $1.15 per share, showing no upside. Although the company isn't known for significant earnings surprises, the market may have expected a slightly better result following a $0.03 beat in Q1.
- Revenue growth of 0.6% year-over-year to $32.8 billion was slightly below analyst expectations. While Q2 is typically a seasonally weak quarter, the minor revenue growth was not unexpected. The primary concern was the factors dragging down overall revenue.
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In the Consumer segment, wireless equipment revenue declined, partially offsetting gains. Persistent sluggish smartphone demand due to suppressed discretionary spending affected Verizon, leading to a nearly 13% decline in wireless upgrades in Q2, following a 21% decline in the same period last year.
- Verizon also shed 624,000 wireless prepaid customers due to the shutdown of the Affordable Connectivity Program (ACP), minimally affecting postpaid revenues and putting pressure on Verizon Fios.
- In the Business segment, total revenue fell 2.4% year-over-year as weak wireline revenue overshadowed increases in wireless service revenues. Unlike Consumer wireline revenue, which was flat year-over-year, supported by 24,000 net adds, Business wireline demand faced setbacks. Management had predicted around 400 net adds quarter-over-quarter, noting the broadband market's slow start this year but gradual improvement.
Despite some challenges, Verizon's Q2 had positive aspects, including 148,000 postpaid phone net additions, surpassing street estimates. Fixed wireless is gaining momentum, aiming for 4.0-5.0 million customers soon. Verizon continues to project total wireless service sales growth of 2.0-3.5%, adjusted EPS of $4.50-4.70, and CapEx of $17.0-17.5 billion for FY24.
However, numerous Q2 blemishes triggered a sharp pullback. Concerns about a shaky economic environment hindering wireless upgrades and potential competitive pressures as consumers seek value may keep Verizon's stock trending sideways in the near term.
