Verizon's first quarter results confirm a 2.6% increase in underlying earnings per share, to $1.20. The group is confident this trend can continue through the year, and so has raised 2019 earnings guidance from broadly flat on 2018 to a low-single digit percentage increase.
The shares rose 1.5% in pre-market trading.
Verizon is one of the world's largest telecommunications groups. Operations are focused on the US, but there's a wide UK shareholder base, after it bought Vodafone out of a joint venture with a shares-plus cash deal in 2014.
Verizon will be restructuring itself this year, but for now there are two main divisions: Wireline and Wireless. Broadly, the former is anything that goes through a landline, such as broadband, while the latter is focused on mobile.
Both have potential to grow. More broadband connections and increasing demand for smartphones has so far provided a favourable backdrop, while the roll-out of 5G could be the "secret sauce" that helps driverless cars and other applications live up to their potential.
Falling debts mean the balance sheet is stronger than it's been in recent years. Earnings and cash flows both look reasonable to us too, and a $10bn cost reduction plan mean there's potential to improve further. That'll lend support to the dividend, which offers a prospective yield of 4.2%
However, it's no one way ticket.
The Wireline business aims to surf the wave of higher speed internet, but established internet and landline services are in decline. This is already pushing the division to a loss, and significant business-to-business sales mean fortunes are closely tied to those of the US economy.
Mobile is a more reliable end market, but it's notoriously competitive. That creates pricing pressure, meaning revenue per customer has been flagging. But the biggest potential trip wire is the costs associated with Verizon's grand plans.
The group's spent over $10bn on bandwidth to help it roll out its 4G coverage. With governments finding ways to squeeze more out of spectrum auctions, we wouldn't be surprised to see it having to fork out significant sums on 5G in the not-so distant future, on top of the everyday maintenance of its sprawling asset base. Capital expenditure has averaged $17bn over the last 3 years, and that's only just covered the average depreciation and amortisation attached to the group's huge asset base.
For now though, Verizon looks in reasonable financial shape, and the potential to provide the infrastructure behind a new age of connectivity is a clear attraction. But investors shouldn't forget it'll come with lofty investment requirements.
Total operating revenues were $32.1bn, up 1.1%.
Growth was driven by the Wireless division adding a net 61,000 retail postpaid customers to comparatively higher-priced plans. Performance was particularly strong in wearables and smartphones. The division saw revenue rise 3.7%, and with operating costs up just 2.8%, operating profit rose 5.2% $8.5bn.
In Wireline, Fios revenue rose 3.6% to $3.1bn, including the addition of 52.000 broadband adds. However, total divisional revenue fell 3.9% to $7.3bn as customers continue to migrate away from legacy copper lines and traditional TV offerings. The division delivered an operating loss of $88m in the quarter.
The group's net debt position was broadly unchanged, with free cash flow improving on account of higher profits.
Capital expenditure was slightly lower year on year, at $4.3bn - which is supporting the launch and build-out of its 4G and 5G services. Capital investment over 2019 is set to be in the range of $17bn to $18bn.
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