Long-time Sarge long Verizon (VZ) went to the tape with the firm's first quarter results on Friday morning. This is one of those names that I largely forget about, just kind of sits there on my book, doesn't attract a lot of attention, unless it is that time of the month when I pay my bills. I am a Verizon customer. Oh, many of you have heard me mention the name on television, but never in isolation. Verizon has always either been part of my "dividend book", or part of my "5G play". The stock has never been one of my top performers, but it has never hurt me either. So, let's take a look at what had to be a tough quarter.
For the quarter, Verizon reported adjusted EPS of $1.26, which did beat expectations, and was good for 9% earnings growth. Nine percent is well above anything seen for that space for this firm since 2018. Sales were a different story. There are some dents in the armor. Revenue landed at $31.6 billion, which was both a miss of consensus view, and down 1.6% year over year.
The firm did acknowledge a negative impact created by the current economic shutdown forced on all of us by the Covid-19 pandemic. Verizon gauges that the pandemic probably had negative four cent impact on EPS, primarily due to the number of customers not paying their bills. The firm has stated that what is known as "bad debt" expenses increased by $228 million given the number of customers that are expected to seek payment relief. Verizon expects these costs to rise further in the second quarter.
The Consumer segment saw revenues decrease by 2% to $21.8 billion. This factors in 307K net phone losses, and 167K postpaid smartphone losses. On the plus side, there were 59K Fios Internet net additions as the need to work and learn remotely increased dramatically. A problem for the firm on the consumer side, has been the need to close nearly 70% of its retail locations, while reducing hours among those able to remain open. This obviously resulted in reduced device volumes for the period. It should be noted that within that $21.8 billion was the $13.5 billion provided through the wireless service, and that component happens to have grown slightly over the same period last year.
On the Business side, revenue declined 1% to $7.7 billion, despite 475K retail postpaid net additions that include 239K net phone adds. This segment saw demand rise for VPN services as well as for increased high-speed circuit capacity. Not only that, but the firm has been responding to increased demand for support from those who are on the front lines of this crisis.
Verizon Media experienced increased customer engagement across its portfolio of platforms such as Yahoo, AOL, Huffington Post, TechCrunch, and Engadget. Unfortunately, due to the impacts on various businesses by this coronavirus, there has been a 4% decrease in revenue provided by this group to $1.7 billion, primarily due to a decrease in advertising.
Needless to say, Verizon has pulled guidance for full year revenue generations due to really the unknowable magnitude or length of what is the current condition of this economy. The firm did reduce guidance for 2020 adjusted earnings growth from +2% to +4%, down to -2% to +2%. This includes the expectation that significant headwinds persist through the second quarter. The firm also expects capital spending to land in a range spanning $17.5 billion to $18.5 billion, which is in line with previous guidance, while the firm's adjusted effective tax rate should end up somewhere between 23% to 25%.
Why am I here? The reasons have not changed. If there is a broad upgrade period where 5G technology becomes the telecom norm, Verizon will be central. I am also in AT&T (T) and Marvell Technology (MRVL) in part for this reason. (... and I don't even like AT&T.)
Verizon ended the quarter with a cash position of a cool $7 billion. That's up significantly from a year ago, as the firm just raised $3.5 billion last month in a new debt offering. To me, that means the dividend, which is a primary reason for my being here, is probably in decent enough shape going forward. This also means that the firm positioned itself well for the unknowable at the onset of a troubled condition. For those wondering, it is too late to get in on this particular quarter payout. The firm is set to make a quarterly payment of $0.615 on May 1st to shareholders of record back on April 13th.
My thought on this is that if one does not buy Verizon today, it probably does not go all that much farther or lower. That said, every dollar counts. Should the 200 day SMA at $57.14 not hold, the investor likely (just my opinion) gets another shot at the 50 day SMA ($55.27). That's where I'll add given the opportunity, but as I have said, I am here for what I see as a relatively safe 4.3% yield in an unsafe environment for dividend yields.
Investors willing to wait for their opportunity and looking to get paid to do so might consider selling (writing) VZ $55 puts expiring on June 19th for about $1.50. If that investor does get tagged, net basis on the shares would come to $53.50. If not, the investor keeps the premium.