What happened
shares of Verizon (VZ -6.74%) fell 6.8% on Friday after the telecom titan lowered its full-year revenue and profit guidance.
so what
Verizon’s second-quarter revenue grew less than 1% year over year to $33.8 billion. The leading mobile operator added 227,000 net contract customers in its business segment but lost 215,000 of those high-value customers in its retail segment.
Verizon faces increasing competition from a newly streamlined company AT&T (T-2.75%). Rival Telekom is divesting its WarnerMedia business and other assets to focus on its mobile and broadband operations. AT&T added 813,000 net postpaid phone subscribers in the second quarter.
Competition led to increased advertising activity during the quarter, which weighed on Verizon’s profitability. That, along with other cost pressures, caused Verizon’s adjusted earnings per share to fall 5.8% to $1.31. Additionally, Verizon’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) — a closely watched metric for telecom companies — fell 2.6% to $11.9 billion.
The drop in profitability also took a toll on Verizon’s cash production. Operating cash flow fell 13% to $17.7 billion.
What now
These trends prompted Verizon to lower its full-year financial guidance. Management now forecasts mobile revenue growth of 8.5% to 9.5%, up from a previous forecast of 9% to 10%. The company also lowered its estimate of adjusted earnings per share to between $5.10 and $5.25 from $5.40 to $5.55.
Still, Chief Financial Officer Matt Ellis told investors that Verizon’s troubles will likely be temporary. “Although recent performance has not met our expectations, we remain confident in our long-term strategy,” said Ellis. “We believe our assets are well positioned to create long-term shareholder value.”
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.