Verizon Sees $4 Billion Tax-Cut Boost Amid Wireless Woes
(Bloomberg) -- Verizon Communications Inc. expects a massive windfall from U.S tax cuts to boost 2018 cash flow by $3.5 billion to $4 billion, giving the phone giant a lift during a challenging time.
The tax-cut boon helped soften the blow as fourth-quarter earnings missed estimates. The largest U.S. wireless carrier has had to offer unlimited data plans to keep luring subscribers as a saturated and competitive market makes it more difficult to attract new customers.
Verizon and other phone carriers are investing heavily in the next generation of wireless networks, known as 5G, and the tax bill will let them immediately deduct that capital spending. Verizon sees investments in the range of $17 billion to $17.8 billion this year, compared with $17.2 billion in 2017, executives said on a call Tuesday. The tax rate for U.S. companies was lowered to 21 percent from 35 percent in last month’s bill, President Donald Trump’s biggest legislative achievement.
“Good well outweighs the bad here,” Jennifer Fritzsche, an analyst with Wells Fargo & Co., wrote in a note Tuesday. “Despite the slightly lower EPS, better revenue and phone adds we believe are key metrics where investors were looking for improvement.”
Verizon posted 1.2 million retail postpaid net additions, including 647,000 phone users, according to its statement.
The bulk of Verizon’s $127.2 billion estimated revenue this year is from the U.S., which makes it one of the biggest tax overhaul beneficiaries in the telecommunications industry. Rival AT&T Inc. was one of the first U.S. companies to cheer the new tax rules and promised to give 200,000 of its workers a $1,000 bonus as a way to celebrate the cuts. The telecommunications giant also reiterated its plan to invest an additional $1 billion in the U.S. this year.
Verizon hinted it may also reward bonuses, saying in Tuesday’s statement that it will make an announcement later in the day “how employees will further share in the company’s success.”
The stock was little changed at $53.47 as of 9:56 a.m. in New York after earlier rising as much as 2.1 percent. The shares rose less than 1 percent last year compared with a 19.4 percent gain by the Standard & Poor’s 500 Index.
By applying a new corporate tax rate of 21 percent on deferred taxes, Verizon booked an increase in fourth-quarter earnings of about $16.8 billion or $4.10 a share, according to a filing last week. Leaving out that one-time increase and other items, earnings were unchanged from a year earlier at 86 cents a share, missing the 88-cent average estimate of analysts.
Verizon is projected to report a net profit of $18.7 billion this year, the average of analysts’ projections compiled by Bloomberg.
On Tuesday’s conference call, Chief Executive Officer Lowell McAdam said that while the company looks at deals, there is “nothing going on” in terms of current M&A.
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