By William Trent, CFA of Stock Market Beat
Verizon Communications (VZ) reported reported earnings:
Verizon Communications Inc. (VZ) today reported strong, profitable first-quarter 2007 revenue growth, supported by industry-leading retail customer growth at Verizon Wireless and strong sales of broadband services, including video. Verizon reported first-quarter 2007 earnings of $1.5 billion, or 51 cents in fully diluted earnings per share [EPS]. This compares with EPS of 56 cents in the first quarter 2006 – which includes operations that Verizon has since divested.
Verizon’s first-quarter 2007 diluted EPS before discontinued operations was 51 cents, or 54 cents per share on an adjusted basis (before special items, non-GAAP), a 17.4 percent increase from 46 cents per share in the first quarter 2006. In total, on an adjusted basis (non-GAAP), Verizon’s first-quarter 2007 earnings were $1.6 billion, or 56 cents in EPS, compared with 60 cents in EPS in the first quarter 2006, which included operations that Verizon has since divested. Special item adjustments in the first quarter 2007 included an extraordinary loss of 5 cents in EPS due to the impact of the Venezuelan government’s nationalization of telecommunications services.
Analysts had been expecting the company to earn $0.53 on $2.5 billion in sales. In our preview of the earnings, we said there was “possible upside to sales.” We were right, as sales came in at $22.6 billion without adjusting for the discontinued operations. According to the company:
Revenues for Verizon Telecom’s consumer market decreased by 3.5 percent, to $4.2 billion, comparing first quarter 2007 with first quarter 2006. However, in legacy Verizon markets, consumer revenues reversed recent
year-over-year declines. (Legacy Verizon consumer markets exclude former MCI consumer markets – where Verizon’s strategic focus has led to expected declines.)
We saw that coming as well. Back in January we noticed that telecom pricing was going through the roof, and said “Which leads us to ask: why, again, is Verizon getting rid of its lines?”
All in all, these days are the best big telecom has seen since the bubble burst. We think estimates have not yet caught up to this new reality, which could lead to further positive surprises in future quarters if we are right.
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