Verizon Communications reported before the market opened on January 26, 2021, it earned $1.11 per diluted share in the quarter that ended on December 31, 2020, down 10 percent from earnings of $1.23 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Adjusted earnings, a non-GAAP figure, rose 7 percent to $1.21 per share from $1.13 one year earlier, a much better change than the GAAP percentage. The principal exclusions contributing to the $0.10 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Severance, pension and benefits charges [$0.08 per share], and Net loss on disposition of business [$0.03 per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by Verizon to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by Verizon's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: Verizon Communications is a major provider of wired and wireless voice and data communications services to U.S. businesses and consumers. The company took its current form in 2000 when Bell Atlantic merged with GTE. Verizon's wireless business is second only to AT&T in the U.S., and in September 2020, Verizon announced it would acquire Tracfone, the leading pre-paid and value mobile service provider. The industry is now transitioning to 5G technology.
The following table is a simplified version of Verizon's Income Statement for the quarter that ended in December 2020, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided for comparative purposes.
Revenue in the December 2020 quarter totaled $34.7 billion, about the same as last year. The Consumer business was responsible for 69 percent of overall revenue, and this unit's revenue percent fell by 1.2 percent compared to the year-earlier result. The Business business contributed 23 percent of revenue, and this unit's revenue was essentially unchanged.
I was expecting Verizon to report revenue of $33.8 billion for the December 2020 quarter. The actual amount surpassed my estimate by $917.0 million (2.7 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $14.8 billion in the latest quarter, which translates into a Gross Margin of 57.3 percent of revenue. Since it was higher than the 55.1 percent Gross Margin achieved in the year-earlier quarter, it signifies that Verizon sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 60.0 percent in the December 2020 quarter, and Verizon missed that prediction by 2.7 percent.
Sales, General, and Administrative expenses totaled $8.5 billion in the December 2020 quarter, up from $8.2 billion one year ago. SG&A expenses increased from 23.6 percent to 24.5 percent of quarterly revenue, which shows Verizon spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 23.5 percent of revenue, and the actual percentage turned out to be higher than the prediction.
Verizon's Operating Income was $7.2 billion in the quarter, up 8.1 percent from the year-earlier period. Operating Income fell short of my $7.7 billion estimate by $554 million.
Interest and other non-operating items summed to a net expense of $927 million. My estimate for non-operating items was $1434 million.
The effective income tax rate rose to 24.5 percent, which had a negative effect on net income. I expected the tax rate to be 23.0 percent.
Net income in the quarter attributable to Verizon was $4.6 billion, $1.11 per share. The figures for the year-earlier quarter were $5.1 billion, $1.23/share. My earnings estimate for Verizon in this quarter was $4.7 billion ($1.14/share).
In summary, Verizon Communications earned in the December 2020 quarter much less than I had expected. The company had better-than-predicted Revenue growth, but the company did worse than I had anticipated with Gross Margin, Operating Income growth, and the Income tax rate.
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#verizon #vz #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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