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Verizon - Increasing costs means profits cut off

Nicholas Hyett | 6 August 2018 | A A A
Verizon - Increasing costs means profits cut off

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Verizon Communications Inc Com Stk US0.10

Sell: 51.42 | Buy: 51.43 | Change 0.69 (1.36%)
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Verizon reported its second quarter earnings on 24 July, with revenues rising 5.4% to $32.2bn.

However, operating costs increased 13.5% to $25.6bn, which pushed earnings per share down 6.5% to $1.00. The decline would have been more steep were it not for a reduced tax bill. Operating profit, which is measured before interest and tax, fell 17.4% $6.6bn.

The shares fell 1.2% on the day of the announcement.

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Half Year Results

In Wireless, the number of contract mobile customers grew 2.3% to 111.6m year-on-year, driven by wearable tech. This more than offset a 11.3% fall in pay as you go customers - which dropped to 4.8m.

Service revenues rose 0.8% to $15.8bn, and would have grown 2.5% were it not for accounting changes. 17.4% growth in equipment sales, plus a 21.2% increase in other revenue, meant the division as a whole saw revenues jump 5.5% to $22.4bn. With operating costs up just 2.2%, operating profits rose 11.7% to $8.3bn.

Retail contract churn increased slightly to 0.97, although remained lower at 0.75 for phones alone.

Wireline reported an operating loss of $19m in the quarter, compared to a $47m profit a year earlier. That reflects a 3.4% decline in divisional revenues.

Within the division, Verizon added a net 70,000 Fios customers.

Looking ahead, Verizon expects low-to-mid single-digit percentage growth in revenues for the full year, with earnings per share growth in the low single-digits. Capital spending for 2018 will be closer to the lower end of the previously announced $17.0bn to $17.8bn range, including the commercial launch of 5G.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.