Verizon Communications Inc reports 26.6% Net Income decline and 3.2 pp EBITDA Margin decline from 37.3% to 34.1%
24 Jan 2017 • About Verizon Communications Inc (
$VZC) • By InTwits
Verizon Communications Inc reported 2016 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Verizon Communications Inc has high CAPEX intensity: 5 year average CAPEX/Revenue was 13.7%. At the same time it's in pair with industry average of 13.2%.
- CAPEX is quite volatile: 3,248 in 2016, 1,653 in 2015, 1,402 in 2014, 2,202 in 2013, 6,298 in 2012
- The company has highly profitable business model: ROIC is at 15.4%
- It operates with high leverage: Net Debt/EBITDA is 2.4x while industry average is 1.5x
Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.
Verizon Communications Inc ($VZC) key annual financial indicators
| mln. $ | 2012 | 2013 | 2014 | 2015 | 2016 | 2016/2015 |
|---|
P&L
|
|---|
| Revenue | 115,846 | 120,550 | 127,079 | 131,620 | 125,980 | -4.3% |
| Gross Profit | 69,571 | 75,663 | 77,148 | 79,063 | 74,556 | -5.7% |
| SG&A | 39,951 | 27,089 | 41,016 | 29,986 | 31,569 | 5.3% |
| EBITDA | 29,620 | 48,574 | 36,132 | 49,077 | 42,987 | -12.4% |
| Net Income | 875 | 11,497 | 9,625 | 17,879 | 13,127 | -26.6% |
Balance Sheet
|
|---|
| Cash | 3,093 | 53,528 | 10,598 | 4,470 | 2,880 | -35.6% |
| Short Term Debt | 4,433 | 3,933 | 2,735 | 6,489 | 2,645 | -59.2% |
| Long Term Debt | 47,618 | 89,658 | 110,536 | 103,240 | 105,433 | 2.1% |
Cash flow
|
|---|
| Capex | 16,175 | 16,604 | 17,191 | 17,775 | 17,059 | -4.0% |
Ratios
|
|---|
| Revenue growth | 4.5% | 4.1% | 5.4% | 3.6% | -4.3% | |
| EBITDA growth | 0.8% | 64.0% | -25.6% | 35.8% | -12.4% | |
| Gross Margin | 60.1% | 62.8% | 60.7% | 60.1% | 59.2% | -0.9% |
| EBITDA Margin | 25.6% | 40.3% | 28.4% | 37.3% | 34.1% | -3.2% |
| Net Income Margin | 0.8% | 9.5% | 7.6% | 13.6% | 10.4% | -3.2% |
| SG&A, % of revenue | 34.5% | 22.5% | 32.3% | 22.8% | 25.1% | 2.3% |
| CAPEX, % of revenue | 14.0% | 13.8% | 13.5% | 13.5% | 13.5% | 0.0% |
| ROIC | 8.0% | 16.7% | 10.1% | 19.3% | 15.4% | -3.9% |
| ROE | 2.5% | 31.9% | 37.6% | 124.5% | 67.4% | -57.1% |
| Net Debt/EBITDA | 1.7x | 0.8x | 2.8x | 2.1x | 2.4x | 0.3x |
Revenue and profitability
The company's Revenue decreased on 4.3% in 2016. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 2.2 pp from 2.8% to 5.0% in 2016.
Gross Margin decreased slightly on 0.89 pp from 60.1% to 59.2% in 2016. SG&A as a % of Revenue increased on 2.3 pp from 22.8% to 25.1% in 2016.
Net Income marign decreased on 3.2 pp from 13.6% to 10.4% in 2016.
Capital expenditures (CAPEX) and working capital investments
The company's CAPEX/Revenue was 13.5% in 2016. The company's CAPEX/Revenue showed almost no change from 2013 to 2016. It's average level of CAPEX/Revenue for the last three years was 13.5%.
Return on investment
The company operates at high and attractive ROE (67.40%) while ROIC is a bit lower (15.41%). ROIC decreased on 3.9 pp from 19.3% to 15.4% in 2016. ROE dropped on 57.1 pp from 124% to 67.4% in 2016.
Leverage (Debt)
Company's Net Debt / EBITDA is 2.4x and Debt / EBITDA is 2.5x. Net Debt / EBITDA surged on 0.3x from 2.1x to 2.4x in 2016. Debt decreased slightly on 1.5% in 2016 while cash dropped on 35.6% in 2016.
Valuation
The company's trades at EV/EBITDA 2.5x and P/E 0.2x while industy averages are 15.6x and 19.1x. Verizon Communications Inc's EV/(EBITDA-CAPEX) is 4.1x with the industry average at 19.0x.
Appendix 1: Peers in Fixed Line Telecommunications
Below you can find Verizon Communications Inc benchmarking vs. other companies in Fixed Line Telecommunications industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2012 | FY2013 | FY2014 | FY2015 | FY2016 |
|---|
| Telefonica Sa ($TDE) | -0.8% | -8.5% | -23.8% | 26.4% | |
| Alternative Networks ($AN.) | | -0.4% | 17.5% | 9.2% | -7.5% |
| Syqic ($SYQ) | 37.6% | 20.5% | 126.5% | 9.2% | |
| Adept Telecom ($ADT) | | -4.1% | -0.8% | 5.8% | 30.9% |
| Telecom Egypt ($TEEG) | 1.6% | 11.0% | 9.2% | 0.2% | |
| |
|---|
| Median (13 companies) | -0.5% | -4.1% | -1.6% | -0.4% | 5.9% |
|---|
| Verizon Communications Inc ($VZC) | | 4.1% | 5.4% | 3.6% | -4.3% |
Top companies by Gross margin, %
| Top 5 | FY2012 | FY2013 | FY2014 | FY2015 | FY2016 |
|---|
| Kt Corp ($KTCD) | 75.5% | 76.0% | 77.9% | 77.9% | |
| Telecom Egypt ($TEEG) | 41.4% | 41.9% | 44.2% | 41.6% | |
| Alternative Networks ($AN.) | 39.0% | 39.2% | 41.2% | 41.3% | 40.9% |
| Syqic ($SYQ) | 57.3% | 59.9% | 43.6% | 41.2% | |
| Adept Telecom ($ADT) | 32.2% | 34.5% | 36.4% | 37.6% | 40.3% |
| |
|---|
| Median (5 companies) | 41.4% | 41.9% | 43.6% | 41.3% | 40.6% |
|---|
| Verizon Communications Inc ($VZC) | 60.1% | 62.8% | 60.7% | 60.1% | 59.2% |
Top companies by EBITDA margin, %
| Top 5 | FY2012 | FY2013 | FY2014 | FY2015 | FY2016 |
|---|
| Ooredoo Qsc ($ORDS) | 46.0% | 42.4% | 37.6% | 39.2% | |
| BT Group ($BT.A) | 31.2% | 32.0% | 31.9% | 33.5% | 33.4% |
| Rostelekom ($RKMD) | 39.7% | 39.0% | 33.0% | 33.4% | |
| Koninklijke Kpn Nv ($0O8F) | 35.9% | 34.1% | 39.1% | 33.2% | |
| Hellenic Telecom.Organization S.A. ($OTES) | 32.0% | 28.8% | 35.4% | 31.3% | |
| |
|---|
| Median (13 companies) | 34.0% | 32.0% | 31.9% | 29.1% | 20.0% |
|---|
| Verizon Communications Inc ($VZC) | 25.6% | 40.3% | 28.4% | 37.3% | 34.1% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2012 | FY2013 | FY2014 | FY2015 | FY2016 |
|---|
| Ooredoo Qsc ($ORDS) | 21.9% | 27.5% | 25.3% | 26.5% | |
| Telecom Egypt ($TEEG) | 5.1% | 6.8% | 13.0% | 21.4% | |
| Rostelekom ($RKMD) | 31.7% | 23.6% | 19.3% | 21.1% | |
| Telefonica Sa ($TDE) | 15.2% | 17.0% | 19.1% | 18.7% | |
| Orange Polska Sa ($OPLD) | 16.6% | 16.9% | 17.6% | 16.9% | |
| |
|---|
| Median (13 companies) | 13.5% | 13.7% | 12.9% | 14.4% | 1.8% |
|---|
| Verizon Communications Inc ($VZC) | 14.0% | 13.8% | 13.5% | 13.5% | 13.5% |
Top companies by ROIC, %
| Top 5 | FY2012 | FY2013 | FY2014 | FY2015 | FY2016 |
|---|
| BT Group ($BT.A) | 23.6% | 27.0% | 34.7% | 37.5% | 21.6% |
| Syqic ($SYQ) | 38.9% | 3.2% | 33.9% | 22.9% | |
| Alternative Networks ($AN.) | 35.2% | 33.7% | 28.5% | 20.2% | 15.2% |
| O2 Czech Republic As ($O2CZ) | 11.8% | 11.7% | 7.2% | 14.5% | |
| Adept Telecom ($ADT) | 11.6% | 15.5% | 13.2% | 14.3% | 16.4% |
| |
|---|
| Median (13 companies) | 11.2% | 8.5% | 7.7% | 7.1% | 16.4% |
|---|
| Verizon Communications Inc ($VZC) | 8.0% | 16.7% | 10.1% | 19.3% | 15.4% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2012 | FY2013 | FY2014 | FY2015 | FY2016 |
|---|
| Telefonica Sa ($TDE) | 2.5x | 2.5x | 3.6x | 4.2x | |
| Koninklijke Kpn Nv ($0O8F) | 3.8x | 3.4x | 3.0x | 3.6x | |
| Ooredoo Qsc ($ORDS) | 1.6x | 1.7x | 2.0x | 2.0x | |
| Rostelekom ($RKMD) | 1.7x | 1.8x | 1.8x | 1.8x | |
| BT Group ($BT.A) | 1.7x | 1.6x | 1.6x | 1.6x | 2.2x |
| |
|---|
| Median (13 companies) | 1.6x | 1.3x | 1.4x | 1.2x | 1.1x |
|---|
| Verizon Communications Inc ($VZC) | 1.7x | 0.8x | 2.8x | 2.1x | 2.4x |
