Verizon reported a strong increase in third-quarter earnings, as cost-cutting efforts and solid handset sales helped offset only modest growth in wireless service revenue and a continued fall in wireline revenues. The company maintained its full-year outlook for a small increase in revenues and adjusted EPS and said it's on track to achieve its target of USD 10 billion in cost savings by 2021.
Quarterly revenues rose 2.8 percent year-on-year to USD 32.6 billion and were up 2.6 percent excluding the impact of the new revenue recognition standards. Service revenue was down 0.4 percent to USD 27.3 billion, while equipment revenues rose 23 percent to USD 5.4 billion.
With total operating costs up just 0.8 percent, Verizon increased operating profit by 9.8 percent to USD 7.7 billion, and the EBITDA margin rose to 37.6 percent from 34.5 percent a year ago. Net earnings rose to USD 1.19 per share from USD 0.89 a year ago, as charges for early debt redemption and integration-related expenses (primarily pertaining to Oath) were partially offset by a pension and benefit re-measurement credit. On an adjusted basis, EPS was USD 1.22, up from 98 cents in Q3 2017, and Verizon said it still expects low single-digit growth in adjusted earnings over the full year.
Year-to-date cash flow from operations totaled USD 26.2 billion, up by USD 9.8 billion year over year. Capex in the first nine months reached USD 12.0 billion, up from USD 11.3 billion a year ago, driven by the launch of the first 5G services, 4G network upgrades and fibre roll-out. The company lowered again its capex budget for the full year, to USD 16.6-17.0 billion from a forecast in July of over USD 17.0 billion.
Despite the increased investment in the first part of the year, Verizon reduced its total debt by USD 4.2 billion since the start of the year to USD 112.9 billion at the end of September. It also contributed an extra USD 1.7 billion to employee benefit programs.
Oath to miss revenue target
In Verizon’s media business, Oath revenues reached USD 1.8 billion in the third quarter, down by 6.9 percent from a year earlier. The company said it expects Oath revenues to be relatively flat in the near term and does not expect to meet the previous target of USD 10 billion in Oath revenues by 2020.
At Verizon Wireless, revenues rose 6.5 percent to USD 23.0 billion in Q3, as the 23 percent increase in hardware sales boosted just 0.8 percent growth in service revenue. The performance was similar to the previous quarter, with 515,000 retail postpaid net additions. That includes net phone additions of 295,000, postpaid smartphone net additions of 510,000, tablet losses of 80,000 and 300,000 other connected devices additions, primarily wearables. While total postpaid accounts were down 0.2 percent year-on-year to 35.3 million, the number of connections rose 2.6 percent to an average 3.18 per account, and average revenue per account edged up 0.2 percent to USD 136.58 in Q3. Retail postpaid churn increased year-on-year to 1.04 percent and Verizon said it expects a further seasonal increase in Q4.
EBITDA from the wireless division totaled USD 11.0 billion, an increase of 10.0 percent year over year, driven by a combination of service revenue growth and efficiencies. The EBITDA margin rose to 47.7 percent from 46.2 percent in third-quarter 2017.
Video subscriber losses accelerate
Wireline revenues fell by 3.8 percent to USD 7.4 billion, with declines in all customer segments. EBITDA dropped 6.9 percent to USD 1.5 billion, and the margin fell to 20.4 percent from 21.1 percent a year ago.
Fios broadband net additions slowed to 54,000 in the quarter, offset by the loss of 52,000 DSL customers. Fios video losses also continued to worsen, with the loss of another 63,000 customers as consumers moved away from traditional pay-TV plans. At the end of the period, Verizon had just over 6 million Fios broadband customers, 945,000 DSL subscribers, just over 12 million fixed lines and 4.5 million video subscribers.
