Verizon VZ -5.64% Communications Inc. earnings fell 13% in the first quarter, and executives warned that higher consumer prices, higher corporate spending and rising interest costs would weigh on earnings in the coming months.
The company announced on Friday that this year’s total revenue from wireless services — the heart of its business — would hit the low end of its previously announced growth target of 9% to 10%. Executives also said that earnings per share, adjusted for certain one-time costs, would come in at the low end of their guidance range of between $5.40 and $5.55.
The bleaker forecast came after Verizon’s postpaid phone base — a key metric for reliable customers who are billed for monthly services — fell by 36,000 connections in the first quarter. Rival AT&T Inc. on Thursday reported a net gain of 691,000 such customers over the same period, though that number left out some lines that were disconnected when the carrier shut down its 3G wireless network in February.
Shares fell 6.3% to $51.55 in early afternoon trade amid Friday’s broad sell-off. The stock is down about 11% over the past 12 months.
Wireless companies have experienced above-average subscriber growth for most of the past two years, raising questions among analysts and investors about the sustainability of network operators’ financial performance. T-Mobile US Inc. TMUS -2.63% is set to report its first quarter results next week.
Matt Ellis, Verizon’s chief financial officer, said Friday that rising interest rates could increase the company’s cash interest expense on outstanding debt by another $150 million to $200 million. He also said worker wages, contractor prices, electricity prices and fuel costs all factor into the airline’s financial projections, although it’s too early to say whether the company would pass those higher costs on to customers.
“We’re at levels of inflation we haven’t had in 40 years and the wireless industry hasn’t existed in 40 years,” Mr. Ellis said in an interview. “But obviously many other industries have been here… and competitive industries can still pass on price increases.”
In the March quarter, net income attributable to Verizon fell to $4.58 billion from $5.25 billion a year earlier. The lower earnings from $1.27 per share to $1.09 were due to lower wireless and broadband service revenue and higher costs for wireless devices such as smartphones.
Total revenue increased 2.1% to $33.55 billion. The most recent result included sales from the November purchase of prepaid phone company TracFone, but missed proceeds from online media stocks like AOL and Yahoo, which were sold to private equity firm Apollo Global Management Inc. in September. APO -3.97%.
With 91.4 million postpaid phone subscriptions at the end of March, Verizon remains the country’s largest wireless service provider by subscriber base. The company also served 23.8 million prepaid connections and continues to support cellular services operated by major cable companies Charter Communications Inc. CHTR -1.48% and Comcast Corp. CMCSA -3.32% are offered.
write to Drew FitzGerald at [email protected]
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Appeared in the April 23, 2022 print edition as “Profit Falls At Verizon As Outlook Weakens.”