The recently resolved Verizon labor strike is expected to impact the company’s Q2 bottom line to the tune of 5 cents to 7 cents per share
Verizon Communications said it expects the recently resolved labor strike will hit financial results for the current second quarter, with that hit expected to stay on the books for the remainder of the year.
Verizon CFO Fran Shammo, speaking this week at a Bank of America Merrill Lynch conference, said the company will see an earning impact of between 5 cents and 7 cents for Q2 related to the labor strike, with that financial impact set to also hit full-year results. Shammo explained the costs are coming from overtime paid to management employees, hiring contract workers to cover for striking workers and a decrease in new business installations. That decrease is expected to result in Verizon posting net losses across its FiOS broadband business for the quarter.
“So we don’t do much installation and if you think about accounting rules, when you do an installation on FiOS, you actually get to capitalize the labor as part of that installation,” Shammo said. “While if you are only working on repair and maintenance jobs and not doing installation, then you have a shift between capital to expense. So some of the pressure that we are seeing in the [profit and loss] is that shift, and what you’ll see is wireline capital will actually come down in the second quarter. So the cash piece of that is neutral to us, but for the P&L side, you’ll see about 5 cents to 7 cents impact to the bottom line for the quarter.”
Verizon posted $1.06 in earnings per share for the first quarter, with the company expected to post around $1 per share in earnings for Q2.
Verizon late last month came to an agreement with approximately 40,000 union workers represented by the Communications Workers of America and the International Brotherhood of Electrical Workers, which saw those employees begin heading back to their jobs earlier this month. Amongst details of the contract, workers are set to receive a 10.5% wage increase over the four-year term of the deal, with Verizon committed to hiring approximately 1,300 new workers. Verizon for its part said it gained the ability to offer special buyout incentives to employees and health care cost savings for current and retired workers under its pension plan.
“This will allow our business to be more flexible and competitive and will help achieve greater efficiencies as we operate in the ever-changing and dynamic digital marketplace,” said Marc Reed, Verizon’s chief administrative officer.
CWA touted “big gains” in a statement on the new deal, noting it also achieved a first contract for wireless retail store workers.
“The addition of new, middle-class jobs at Verizon is a huge win not just for striking workers, but for our communities and our country as a whole,” said CWA President Chris Shelton. “The agreement in principle at Verizon is a victory for working families across the country and an affirmation of the power of working people. This proves that when we stand together we can raise up working families, improve our communities and protect the American middle class.”
Shammo had initially said the company did not expect any impact from the labor strife, before acknowledging there would indeed be a financial impact.
Acting on the news, Wells Fargo Securities slashed its Q2 and full-year wireline revenue estimates by $343 million and $826 million, respectively; and lowered its Q2 wireline margins from 18.9% to 17.7%, and its full-year wireline margins from 20.7% to 19.9%. The firm said it expects Verizon to lose approximately 25,000 customers from both its FiOS and video service during Q2, from previous guidance of 75,000 and 30,000 net adds, respectively, while operating expenses could negate any drop in capital expense.
As for its wireless operations, Shammo this week said the company does not expect any impact, “so it will be a normal quarter for wireless.”
Looking further ahead, Shammo expects “less headwind” on operations next year than what the company has seen in 2016, citing the carrier’s wireless operations pushing past the 50% mark in take rate for its equipment installment plans, which will help turn around sinking revenue and expected boosts from the company’s efforts around its AOL, Go90, digital media and telematics business.
Bored? Why not follow me on Twitter
