Verizon Communications said an ongoing strike by its wireline workers was expected to hurt earnings in the current quarter, even as it reported first-quarter net income that met analyst expectations amid strong tablet sales.
Shares of Verizon, the No 1 US wireless carrier, were down 1.6% at $50.18 in morning trading on Thursday. If the strike, now in its second week, goes on for an extended period, it could pressure full-year earnings, the chief financial officer, Fran Shammo, said in an interview.
The strike has caught national attention and union workers have attracted the support of Democrat presidential hopefuls Bernie Sanders and Hillary Clinton. “We’d like to settle this sooner than later,” Shammo said.
About 40,000 employees of Verizon’s wireline business, which includes its Fios internet, telephone and TV services, went on strike after reaching an impasse in talks over a new labor contract. Issues include healthcare, offshoring of call center jobs, temporary job relocations and pensions.
“Verizon’s first-quarter earnings show starkly how the company’s misguided priorities and scattershot approach to business are hurting customers and the company’s standing on Wall Street. Despite making $39bn profits over the last three years and $4.43bn in the first quarter of 2016 alone, the company is refusing to settle a fair contract and continues its efforts to offshore jobs to the Philippines, Mexico and other locations,” said Anthony Finocchio, who walked off his job as a field technician nine days ago. Finocchio has been on strike with other Brooklyn-based Verizon workers.
In the wireline business, Verizon’s consumer revenue of $4bn was relatively unchanged from a year ago. Net income attributable to the company rose to $4.31bn, or $1.06 per share, in the first quarter, meeting analysts’ expectations. A year earlier, net income was $4.22 bn, or $1.02 per share.
The company stood by its full-year profit forecast. It said in January that 2016 adjusted earnings would be at a level comparable to 2015.
Verizon has been scaling back its Fios TV and internet business, which represented about 29% of its 2015 revenue. To tap new revenue, the company has shifted its focus to the advertising-supported internet business and acquired AOL last June for $4.4bn. It is seen as the frontrunner in bidding for Yahoo Inc’s core internet business.
“Verizon is trying to pivot its business from analog to digital,” Craig Moffett, senior analyst at MoffettNathanson, a telecommunications-research firm, told the Wall Street Journal. “Verizon believes that a combined AOL/Yahoo would provide the digital advertising platform they need to execute their video reinvention strategy.”
The striking workers are not thrilled with Verizon’s plan to bid on Yahoo.
“Rather than investing in good jobs here at home, Verizon refuses to make Fios available to thousands of people in towns and cities throughout the east coast and is embarking on a questionable path to acquire troubled Yahoo and other companies,” Finocchio said on Thursday. “The value of the Yahoo deal alone would cover the cost to fulfill Verizon’s commitment to New York and complete the Boston buildout with billions left over.”
The company, known for its high-quality network, is locked in a battle for subscribers with competitors in the saturated US wireless market. Smaller rival Sprint Corp has been offering half-off discounts, and T-Mobile US Inc has launched free music and video-streaming plans.
Verizon reported strong subscriber net additions for the first quarter ended 31 March, adding 640,000 wireless retail postpaid subscribers, helped by tablet promotions during a seasonally slow period for phone upgrades. That surpassed analysts’ average estimate of 480,000, according to market research firm FactSet StreetAccount.
Customer defections, known as churn, in Verizon’s wireless postpaid business, dropped to 0.96% from 1.03% a year earlier.
Total operating revenue rose 0.6% to $32.17bn, falling slightly short of analysts’ average estimate of $32.46bn, according to Reuters.
Reuters contributed to this report.
