Verizon warns strike could `pressure' earnings
NEW YORK—Verizon reported a small rise in earnings Thursday, but warned that a strike with unionized workers that is now in its second week could damage current quarter earnings.
Shares of Verizon (VZ) fell 4% to $49.68, compared to the S&P 500, which was down just 0.5%.
For the first three months of the year, Verizon reported net profit of $4.4 billion or $1.06 a share, up from $4.3 billion or $1.03 a share a year ago. The most recent quarter was in line with what analysts polled by S&P Global Market Intelligence anticipated.
Operating revenues for the quarter rose 0.6% to $32.2 billion, short of the $32.46 billion expected by analysts. Excluding AOL, which was not part of Verizon a year ago, total operating revenues would have declined 1.5 %, partly because customers moved to unsubsidized wireless pricing. Now nearly half of Verizon's wireless are on some unsubsidized pricing plan.
During a webcast with investors, Verizon Chief Financial Officer Fran Shammo addressed the strike that began last week among nearly 40,000 workers. "Given the status of our labor contract negotiations, there will be pressure on earnings due to the timing of cost reductions. Depending on the progress of the negotiations, we may need to update the full-year guidance at a later time." Shammo said he doesn't anticipate any significant financial impact in the second quarter, "unless this drags on for a much longer time."
If a prolonged strike does happens, Edward Jones analyst Dave Heger cautions that Verizon earnings would take a hit because of a delay in cost cutting efforts.
Verizon's Shammo didn't talk about the other topic that's pushed Verizon into headlines recently: A possible bid for Yahoo's core Web assets.
Executives have been public about the company's interest in Yahoo parts, which analysts say could bolster Verizon's content and advertising technology. They point to Verizon's record with its AOL purchase as a sign of interest and capability.
Verizon seen as bidder to beat for Yahoo
Verizon on Thursday said AOL had its highest first-quarter revenues in the last five years. The company bought AOL last year in a deal valued at $4.4 billion.
On the wireless side, the company said it gained 640,000 retail customers, calling it “a seasonally low-volume quarter.” At the end of the quarter, Verizon says it had 112.6 million retail connections overall, a 3.7% year-over-year increase, and 107.2 million among so-called "post-paid" customers, the folks who typically pay their bills monthly. That represents a 4.4% year-over-year increase.
To stave off fierce competition in the wireless space, Verizon continues to run ads crowing about the quality of its network, which was borne out in recent independent testing done recently by RootMetrics.
Analyst Craig Moffett of MoffettNathanson says the quarterly data suggests that Verizon has been losing share to T-Mobile, while holding its own against AT&T and Sprint. Moffett characterizes Verizon's wireless financial metrics for the quarter as mixed, but says margins remain strong and churn rates (customers leaving for a rival carrier) low.
Verizon also said that it has added 98,000 new Fios Internet connections and 36,000 net new Fios video connections in the first-quarter 2016, with Fios revenues growing 5% to $3.5 billion.
In the emerging Internet of Things category, Verizon reported $195 million in revenues, a 25% rise compared to a year ago.
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