Verizon released its first-quarter earnings on April 24, 2020. In this post, we will discuss a summary of those results.

Financial Metrics:

Market Cap – $223.87 Billion

Market Price – $54.10

Earnings per share – $1.00

P/E Ratio – 12.21

P/B Ratio – 3.72

ROE – 31.38%

ROA – 6.39%

1Q 2020 Highlights:

Consolidated:

• Verizon earned $1.00 in earnings in the first quarter of 2020, compared to $1.22 in the year-ago quarter of 2019. Adjusted earnings for the first quarter was $1.26, excluding special items, compared to the $1.20 in the first quarter of 2019.
• Verizon’s operating income declined 1.6% in the first quarter of 2020.
• Verizon’s cash flow of operations increased $1.7 billion from the first quarter of 2019 to a level of $8.8 billion.

Consumer:

• Verizon saw a total revenue of $21.8 billion, which was a decrease of 1.7% year over year.
• There were 525,000 retail postpaid net losses, including 370,000 net phone losses and 167,000 postpaid smartphone net losses.
• Verizon saw a total postpaid churn of 1.01%, and a retail postpaid phone churn of 0.77%.
• Verizon reported 59,000 Fios Internet net additions for the first quarter of 2020.

Business:

• The business segment saw total revenues of $7.7 billion, which was a decrease of 0.5% year over year.
• The segment also observed 475,000 retail postpaid net additions, which included 239,000 phone net additions.
• There was a total retail postpaid churn of 1.30% and a retail postpaid phone churn of 1.02% year over year.

Total Wireless:

• Verizon had total revenues from wireless products and servings of $22.6 billion, which was a 0.5% decrease year over year. Verizon had service revenues increase by 1.9% compared to year over year.
• The segment also saw 50,000 retail postpaid net losses, including 68,000 net phone losses and 95,000 postpaid smartphone additions.
• The total churn for the wireless segment for retail postpaid was 1.08%, with the retail phone churn of 0.82%

From the Chairman and CEO, Hans Vestberg:

“Verizon began 2020 with strong operational performance. In an unprecedented time, Verizon took decisive and balanced actions that will serve our stakeholders in the long term, including protecting our employees, maintaining our network quality and reliability, serving our customers, and supporting our communities. We will emerge from this crisis stronger, knowing we provided critical connectivity to our customers, and especially our first responders, while maintaining our commitment to investing in our 5G and Fiber strategies. We are particularly proud of our employees who continue to deliver essential services to our customers and those on the front lines so they can serve others.”

Earnings Overview

For the first quarter of 2020, Verizon reported earnings per share of $1.00, compared with $1.22 in first-quarter 2019. On an adjusted basis (non-GAAP), the first-quarter 2020 earnings per share, excluding special items, was $1.26, compared with adjusted earnings per share of $1.20 in first-quarter 2019. The company estimates that the first-quarter earnings per share of 2020 and adjusted earnings per share included approximately -0.4 cents of COVID-19-related net impacts, primarily driven by an increase to its bad debt reserve.

The first-quarter earnings per share included a pre-tax loss from special items of approximately $1.4 billion, with a loss of $1.2 billion loss related to the FCC’s recently completed auction. Additionally, a charge of $182 million related to a mark-to-market adjustment for pension liabilities.

In the first quarter of 2020, Verizon’s results were also reduced as a result of continued effects in the reduction in benefits. There was a change in revenue recognition standard, which was due to the deferral of commission expenses. Verizon’s net impact of this change was 3 cents in the first quarter of 2020.

Consolidated Results

Verizon’s total consolidated operating earnings were $31.6 billion in the first quarter, which was down 1.6% compared to the first quarter of 2019. The decline was driven by growth in wireless service revenue in both Consumer and Business segments. Sharp reductions in equipment revenue offset the growth as a result of the stay-in-place orders and the reduction of in-store traffic.

First-quarter cash-flow from operations totaled $8.8 billion, which was an increase of $1.7 billion compared to the first quarter of 2019. Verizon attributes the year over year growth to the Voluntary Separation Program payments, plus voluntary pension contributions made in the first quarter of 2019 that didn’t repeat this year. Also, Verizon reported improvements in working capital for the first quarter of 2020.

Verizon had capital expenditures of $5.3 billion in the first quarter of 2020. These capital expenditures are continuing to support the growth that Verizon sees across its networks. Along with the deployment of fiber and additional cell sites in preparation for the company’s rollout of 5G Ultra Wideband.

In 2018 Verizon announced its goal to achieve $10 billion in cash savings by the end of the year in 2021. So far, Verizon has achieved a total of $6.3 billion in cash savings since the beginning of the program and is on target to achieve its goal by the stated period.

Verizon’s bad debt expense increased in the first quarter of 2020, primarily because of changing expectations around customer payments during the Coronavirus pandemic. In response, Verizon has increased its bad debt reserve by $228 million in the first quarter, which was based on the expected number of customers believed to seek payment relief under the Keep Americans Connected pledge.

Verizon ended the first quarter with $7 billion cash on hand. An increase of $4.5 billion from the previous year’s quarter. Verizon is carrying a higher cash balance as part of its liquidity planning, which included the $3.5 billion bond offering that was completed in March of 2020.

Consumer Results

Total Verizon consumer revenues were $21.8 billion, which was a decrease of 1.7% compared to year over year. The decrease was driven by strong service revenue, all of which was overcome by a sharp decrease in wireless equipment revenue as a result of much lower volume in stores.

Covid-19 and the effects of the pandemic resulted in Verizon closing nearly 70 percent of all company-operated retail stores along with reducing in-store service hours to maintain social distancing. The reduction in volume in stores severely reduced both customer activity and phone volumes in the first quarter.

Consumer wireless service revenues were down 0.9% in the first quarter of 2020 for a total of $13.5 billion.

Verizon consumer segment reported 59,000 Fios Internet net additions as work-from-home, homeschooling, and others, all of which increased the demand for high-quality broadband. The Consumer segment also reported net losses of 84,000 Fios Video in the first quarter of 2020. According to Verizon, this reflects the ongoing shift from the more traditional linear video to new over-the-top offerings.

In the first quarter of 2020, the Consumer segment operating incomes was $7.3 billion, which was an increase of 0.4 percent from the previous year. The segment operating income margin was 33.5 percent, increasing to 32.7 percent from the previous year’s quarter.

EBITDA for the segment was $10.1 billion in the first quarter, decreasing 0.4 percent from the previous year. The segment EBITDA margin was 46.4 percent, which was up from 45.8 percent in the first quarter of 2019.

Business Segment Results

The Verizon Business segment reported revenues of $7.7 billion, which was down 0.5 percent from the previous year. Business trends remained strong during the first quarter of 2020. Beginning in March, the Business segment reported increased demand for its products and services. Products requested the most were for mobility, jetpacks, high-speed circuit capability, and VPN services. There was also increased demand for support to help front line crisis responders, homeschooling arrangements, and the new work-for-home realities.

During the first quarter of 2020, the Business segment reported an operating income of $954 million, a decrease of 9 percent from the previous year. And the segment operating income margin decreased to 12.4 percent, compared to 13.6 percent of the first quarter of 2019. Business segment EBITDA was $2 billion in the first quarter, which was a decrease of 5.8 percent from the previous year over year. The segment EBITDA margin decreased to 25.6 percent, compared to 27.1 percent in the first quarter of 2019.

Media Segment Results

The Media segment reported revenues of $1.7 billion, which were down 4 percent year over year. All of which were driven by the Coronavirus pandemic. Before the crisis, the Media segment reported a steady increase in revenues that had started in the previous year. Verizon Media has seen an increase in levels of customer engagement across its platforms, but Covid-19 impacts have halted advertising rates for the quarter.

That wraps up the summary section of the quarterly report for Verizon for the first quarter of 2020.

Valuation

To value Verizon I am going to use a discounted cash flow and I will share the inputs that I am assuming so you can follow along with my reasoning.

Resulting in a price per share of $62.51, which compared to the market price of $55.14, gives a margin of safety currently.

The above are estimates, and many of my assumptions may be faulty, so please do your homework when determining what you think the intrinsic value of Verizon might be.

Final Thoughts

The above summary and intrinsic value calculations are my attempt to help inform investors of Verizon’s performance during the first quarter of 2020.

The post is not meant as investment advice, and no recommendations are given, the information is presented in the light of informational and educational.

Thanks for reading and I hope you found some value.