Why Verizon Reduced Its 2017 Outlook after Weak 4Q16 Results
Verizon’s outlook on consolidated results for 2017
During the Morgan Stanley Technology, Media & Telecom Conference held on February 28, 2017, Matt Ellis, Verizon’s (VZ) chief financial officer, talked about the company’s expected performance during 2017.
Verizon has guided its 2017 total revenue to be “fairly consistent with that of 2016” on an organic basis, which uses a normalized base of $125.0 billion. This is a walk back from the “GDP-like” growth the company previously mentioned.
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Verizon expects its 2017 adjusted EPS (earnings per share) to be in line with its 2016 EPS, driven largely by its Wireless segment and excluding the impact of the strike in its Wireline segment in 2Q16.
Wall Street analysts expect Verizon’s adjusted EPS to fall ~0.5% YoY (year-over-year) to reach ~$3.85 in 2017, compared to $3.87 in 2016.
Key points from Verizon’s guidance
Verizon is expecting capital expenditure in the range of $16.8 billion–$17.5 billion and a minimum pension funding requirement of $600 million. This lower-than-expected outlook is mainly the result of lower wireless service revenue caused by intense competitive pressures.
Verizon and AT&T (T) are facing tough competition from smaller rivals T-Mobile (TMUS) and Sprint (S), which are using price cuts to aggressively gain subscribers. Sprint, for instance, is promising subscribers who defect to its network that they’ll only have to pay half the price of the plans they have with their former providers. On top of that, Sprint is paying up to $650 in switching costs per line for defectors.