While Verizon, the largest US wireless carrier by subscribers, reported earnings which missed on both the top and bottom line, it was another data point that has caught the market's attention this morning making VZ the leading decliner in the DJIA: in the first quarter of 2017, Verizon posted its first ever quarterly net loss of wireless subscribers.

The decline took place despite Verizon's relaunch of its "unlimited" wireless plan, and while the company said that the move “positively changed the trajectory of customer additions” in the quarter, it still reported a net decline of 307,000 retail postpaid connections during the first three months of the year, including 289,000 phone losses. It remains to be seen if the unlimited plan will help with organic declines - the company also said that before the launch of its “Verizon Unlimited” plans in mid-February, Verizon had a retail postpaid phone net loss of 398,000; after the launch, Verizon said it added 109,000 retail postpaid phone connections, as the WSJ reported.

The subscriber drop underscored the recent adverse trend: total Verizon revenue declined 7.3% to $29.8 billion, missing estimates $30.8 billion .

Looking at the components, total wireless revenue of $20.88 bn declined 5.1% yoy and compared to estimates of $21.4 bn, while EBITDA of $9.4 bn declined 7.5% yoy (45.1% margins) and compared with estimates of $9.87 bn (46.1% margins).

Wireless metrics included a loss of 307K postpaid subs (vs. +350K expected) and included -289K phone subs vs. -175K expected. Total churn of 1.39% and postpaid churn of 1.15% compared with estimates of 1.19% / 0.95% respectively. Positively, VZ noted an improvement in the phone loss trajectory post the announcement of unlimited data plans in February (+109K). Postpaid phone churn also remained below 0.90% in the quarter.

The wireline segment that includes its FiOS service logged a revenue decline of 0.6%, to $7.9 billion.

Verizon expects improvement in wireless service revenue this year, with total revenue “fairly consistent” with 2016. But that stands to leave Verizon in a familiar position: slowing growth on the top and bottom lines, and a sliding stock price.

 

Over all, for the March quarter, Verizon reported a profit of $3.45 billion, or 84 cents a share, compared with $4.31 billion, or $1.06 a share, in the year-ago period. Excluding certain items, Verizon earned 95 cents a share.

ADditionally, as Goldman notes, Verizone utilized a portion of its $11.0 bn US debt raise to contribute $3.4 bn to the pension plan which negatively impacted reported cash flow from operations. That said adjusting for the pension contribution of $3.4 bn still left Cash from operations of $5.1 bn below expectations of $5.9 bn. Adjusted FCF was $2.03 bn while FCF after dividends was -$329 mn. Verizon's CFO in 1Q16 included $1.98 bn of securitization proceeds which also needs to be considered when examining yoy trends. On the balance sheet, VZ finished the quarter with $116.5 bn of debt, $4.3 bn of cash, 2.7x gross leverage and 2.6x net leverage. The debt balance included $1.28 bn of ABS borrowings raised in the quarter.

Goldman's summary take:

Overall we expect the weak operating performance to keep investors focused on the company's strategic options particularly following CEO Lowell McAdam's commentary around potential M&A on Tuesday. Apart from potential M&A, additional focus for the call will include: (1) future cash flow dynamics; (2) more color on wireless competition post the unlimited data launch, and (3) an update on FiOS performance given weaker than expected net add performance in the quarter.