Verizon’s Profit Falls 23% as Price Increases Slow Growth

Verizon VZ -4.46%

Communications Inc. on Friday unveiled a new cost-cutting plan after higher corporate costs and rising interest rates hit its third-quarter profit.

The largest US cell phone carrier in terms of subscribers reported a net gain of 8,000 phone connections under postpaid billing plans during the September quarter, a sign that recent rate increases have driven many of its most reliable customers to leave the service.

rival AT&T Inc.

on Thursday it reported a net gain of 708,000 such connections over the same period.

The shares fell 4.5% to $35.35 on Friday. The stock has lost almost a third of its value so far this year, compared to a 21% drop in the S&P 500 index.

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However, Verizon executives said price increases for certain cell phone plans were paying off, noting that overall wireless service revenue grew during the third quarter. Verizon and AT&T raised rates on certain plans over the summer in response to rising costs for other consumer goods.

“We saw that all the actions we took in the quarter had a positive impact,” Chief Executive Hans Vestberg said during a call with analysts. “That doesn’t mean we’re done. We believe we can do more and we have more to do.”

Among those next steps was a new cost-cutting program that executives say will save between $2 billion and $3 billion a year by 2025. The company did not detail how the initiative would reduce expenses or how many jobs, if any. If there were, it would affect the measure. .

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Verizon’s overall net income, excluding gains from non-controlling interests, fell nearly 24% to $4.9 billion in the September quarter. Higher overhead costs and interest expense contributed to weaker earnings, though the company’s adjusted profit still beat Wall Street analysts’ expectations, according to data from FactSet..

Total revenue increased 4% to $34.24 billion, beating analysts’ expectations of $33.76 billion. The increase included a 10% increase in wireless revenue driven primarily by Verizon’s purchase of TracFone’s prepaid wireless business.

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Chief Financial Officer Matt Ellis said in an interview that improving profitability in Verizon’s core wireless business showed its strategy was headed in the right direction. Many subscribers paid their bills on time and upgraded to more expensive plans during the last quarter despite signs of stress in the broader economy, he added.

“We can continue to attract customers and enhance them to increase revenue” with more comprehensive plans, Ellis said. “If there are opportunities to raise prices, obviously we won’t be shy about doing so.”

Email Drew FitzGerald at [email protected] and Dean Seal at [email protected]

Consumer spending has held up relatively well so far despite inflation, but experts say we are approaching a tipping point. Sharon Terlep of the WSJ explains the role “elasticity” plays in a company’s decision on whether to raise prices. Illustrative photo: Adele Morgan

Email Dean Seal at [email protected]

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