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Assessing the Impact of Q2 Earnings on Telecom ETFs
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Despite the telecom sector’s strong performance this year since mid-April, as indicated by the S&P Telecom Select Industry Index, its growth rate remains lower than the broader market, represented by the S&P 500. The telecom sector has added about 2.49% year to date, as compared to the S&P 500’s 13.2% gain.
However, the sector’s outlook remains optimistic, driven by optimistic AI forecasts and the rising market expectations of an interest rate cut in September. Both AT&T and Verizon Communications Inc. reported a modest second-quarter growth.
Below, we highlight second-quarter earnings results from these companies.
Earnings in Detail
Verizon Communications
On Jul 22, Verizon Communications (VZ - Free Report) reported relatively healthy second-quarter results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. This resulted in the shares of the company falling about 6.6% before market open on Jul 22. However, shares of the company have gained 2.95% since then.
The company faced a sharp decline in prepaid wireless subscribers following the end of a federal Internet subsidy. According to VZ, as quoted on Reuters, the company lost wireless retail prepaid subscribers in Q2, largely due to the end of the COVID-era Affordable Connectivity Program (ACP) in May.Tony Skiadas, VZ’s CFO, stated that ACP-related disconnections will have a smaller effect in the next quarter.
Net income in the quarter was $4.7 billion or $1.09 per share, on a GAAP basis, compared with $4.77 billion or $1.10 per share in the prior-year quarter. Excluding non-recurring items, quarterly adjusted earnings came in at $1.15 per share compared with $1.21 in the prior-year quarter, beating the Zacks Consensus Estimate by a penny.
Total operating revenues increased to $32.79 billion from $32.59 billion in the prior year but failed to beat the Zacks Consensus Estimate of $33.05 billion. The year-over-year rise was driven by pricing actions, partially offset by lower wireless equipment revenues generated from a challenging macroeconomic environment and fewer postpaid phone upgrades.
The company expects wireless service revenues to grow by 2-3.5% for 2024 and adjusted earnings in the range of $4.50 to $4.70 per share.
AT&T
On Jul 24, AT&T (T - Free Report) reported modest second-quarter 2024 results, as solid wireless traction and customer additions were partially offset by lower demand for legacy voice and data services.
The company recorded strong subscriber growth backed by a resilient business model and robust cash flow position, driven by a diligent execution of operational plans, resulting in the shares of the company gaining 3.60% before market open on Jul 24. The shares of the company have gained about 5.60% since then.
On a GAAP basis, AT&T reported net income of $3.5 billion or $0.49 per share compared with $4.4 billion or $0.61 cents per share in the year-ago quarter. The decline was primarily attributable to lower net sales and higher operating expenses year over year. Excluding non-recurring items, adjusted earnings from continuing operations were $0.57 cents per share compared with $0.63 cents in the year-ago quarter, also missing the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues decreased marginally by 0.4% year over year to $29.8 billion, falling short of the consensus mark of $30.15 billion. This decline was largely due to lower Business Wireline revenues, which were partially offset by higher Mobility Service, Mexico and Consumer Wireline revenues.
While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs while focusing on 5G and fiber-based connectivity, along with an expanded reach of software-based entertainment platforms. The company anticipates wireless service revenues to improve by 3%, with adjusted earnings projected to be $2.15-$2.25 per share. AT&T is also aiming to reduce its debt burden by monetizing non-core assets.
ETFs in Focus
Below, we highlight a few ETFs with considerable exposure to the mentioned companies.
Image: Bigstock
Assessing the Impact of Q2 Earnings on Telecom ETFs
Despite the telecom sector’s strong performance this year since mid-April, as indicated by the S&P Telecom Select Industry Index, its growth rate remains lower than the broader market, represented by the S&P 500. The telecom sector has added about 2.49% year to date, as compared to the S&P 500’s 13.2% gain.
However, the sector’s outlook remains optimistic, driven by optimistic AI forecasts and the rising market expectations of an interest rate cut in September. Both AT&T and Verizon Communications Inc. reported a modest second-quarter growth.
Below, we highlight second-quarter earnings results from these companies.
Earnings in Detail
Verizon Communications
On Jul 22, Verizon Communications (VZ - Free Report) reported relatively healthy second-quarter results, with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. This resulted in the shares of the company falling about 6.6% before market open on Jul 22. However, shares of the company have gained 2.95% since then.
The company faced a sharp decline in prepaid wireless subscribers following the end of a federal Internet subsidy. According to VZ, as quoted on Reuters, the company lost wireless retail prepaid subscribers in Q2, largely due to the end of the COVID-era Affordable Connectivity Program (ACP) in May.Tony Skiadas, VZ’s CFO, stated that ACP-related disconnections will have a smaller effect in the next quarter.
Net income in the quarter was $4.7 billion or $1.09 per share, on a GAAP basis, compared with $4.77 billion or $1.10 per share in the prior-year quarter. Excluding non-recurring items, quarterly adjusted earnings came in at $1.15 per share compared with $1.21 in the prior-year quarter, beating the Zacks Consensus Estimate by a penny.
Total operating revenues increased to $32.79 billion from $32.59 billion in the prior year but failed to beat the Zacks Consensus Estimate of $33.05 billion. The year-over-year rise was driven by pricing actions, partially offset by lower wireless equipment revenues generated from a challenging macroeconomic environment and fewer postpaid phone upgrades.
The company expects wireless service revenues to grow by 2-3.5% for 2024 and adjusted earnings in the range of $4.50 to $4.70 per share.
AT&T
On Jul 24, AT&T (T - Free Report) reported modest second-quarter 2024 results, as solid wireless traction and customer additions were partially offset by lower demand for legacy voice and data services.
The company recorded strong subscriber growth backed by a resilient business model and robust cash flow position, driven by a diligent execution of operational plans, resulting in the shares of the company gaining 3.60% before market open on Jul 24. The shares of the company have gained about 5.60% since then.
On a GAAP basis, AT&T reported net income of $3.5 billion or $0.49 per share compared with $4.4 billion or $0.61 cents per share in the year-ago quarter. The decline was primarily attributable to lower net sales and higher operating expenses year over year. Excluding non-recurring items, adjusted earnings from continuing operations were $0.57 cents per share compared with $0.63 cents in the year-ago quarter, also missing the Zacks Consensus Estimate by a penny.
Quarterly GAAP operating revenues decreased marginally by 0.4% year over year to $29.8 billion, falling short of the consensus mark of $30.15 billion. This decline was largely due to lower Business Wireline revenues, which were partially offset by higher Mobility Service, Mexico and Consumer Wireline revenues.
While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs while focusing on 5G and fiber-based connectivity, along with an expanded reach of software-based entertainment platforms. The company anticipates wireless service revenues to improve by 3%, with adjusted earnings projected to be $2.15-$2.25 per share. AT&T is also aiming to reduce its debt burden by monetizing non-core assets.
ETFs in Focus
Below, we highlight a few ETFs with considerable exposure to the mentioned companies.
iShares U.S. Telecommunications ETF (IYZ - Free Report)
iShares U.S. Telecommunications ETF has an exposure of 14.45% in VZ and 4.58% in T.
Invesco S&P 500 Equal Weight Communication Services ETF (RSPC - Free Report)
Invesco S&P 500 Equal Weight Communication Services ETF has an exposure of 4.78% in T and 4.40% in VZ.
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)
Fidelity MSCI Communication Services Index ETF has an exposure of 4.51% in VZ and 3.84% in T.
Vanguard Communication Services ETF (VOX - Free Report)
Vanguard Communication Services ETF has an exposure of 4.50% in VZ and 3.74% in T.
SPDR S&P Telecom ETF (XTL - Free Report)
SPDR S&P Telecom ETF has an exposure of 4.30% in T and 4.08% in VZ.