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Verizon Communications Inc . (NYSE: VZ ), the largest U.S. wireless carrier, has come out with lukewarm earnings for the fourth quarter of 2014. While the company managed to surpass the Zacks Consensus Estimate for revenues, it reported in line earnings results. Verizon Earnings in Details Excluding one-time items (pension and other post-employment benefit liabilities), adjusted earnings per share came in at 71 cents, up 7.6% from adjusted earnings of 66 cents per share in Q4 2013. Adjusted earnings were in line with the Zacks Consensus Estimate. Verizon however posted a net quarterly loss of $2.23 billion or 54 cents per share as against a profit of $1.76 per share in the year-ago-quarter, largely attributable to costs incurred for employee pensions and severance. Quarterly revenues increased 6.8% year over year to $33,192 million, beating the Zacks Consensus Estimate by 2%. The year-over-year rise was driven by increased demand for Verizon Wireless and its high-speed FiOS Internet services. During the reported quarter, the company added 2 million postpaid customers as compared to 1.5 million subscribers added in the last quarter. However, profit margins at its wireless business contracted to 42% in the fourth quarter from 47% in the year-ago period. Also, the quarterly retail postpaid churn rate, the percentage of subscribers who switched to another wireless provider, increased to 1.14% from 0.96% in the year-ago quarter. On the wireline side, the company added net 116,000 FiOS video subscribers, 145,000 FiOS Internet subscribers and 88,000 FiOS digital video residence connections. ETF Impact Despite reporting in line earnings results, Verizon’s share price closed roughly 1% lower on concerns of lower revenue growth at the wireless segment, higher churn rate, added customer acquisition costs and provision for pension payment. Investors seem to be worried about the ongoing wireless price war, which might affect margins further. Other telecom players like AT&T (NYSE: T ) and Sprint (NYSE: S ) also fell 0.62% and 2.3% respectively, following Verizon’s uninspiring results. However, T-Mobile (NYSE: TMUS ) rose 1.40% in yesterday’s trading session. Given the mixed reaction from the telecom players, Telecom ETFs closed marginally higher on Thursday’s trading session. Below, we have highlighted three telecom ETFs with the largest allocation to Verizon. Investors should keep a close eye on these ETFs as they might face volatile trading in the days ahead, given that AT&T is also set to report results towards the end of the month. ETFs to Watch Vanguard Telecommunication Services ETF (NYSEARCA: VOX ) The most popular telecom ETF – VOX – tracks the MSCI US Investable Market Telecommunication Services 25/50 Index and holds 31 stocks in its basket. Verizon occupies the top position in the basket with 22.2% of assets. Sector-wise, about two-thirds of the portfolio is skewed toward integrated telecom services, followed by alternative carriers and wireless telecommunication services. The product has amassed $841.6 million in its asset base and charges 14 bps in annual fees. VOX gained 0.65% in yesterday’s trading session and is up nearly 2% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘Medium’ risk outlook. Fidelity MSCI Telecommunication Services Index ETF (NYSEARCA: FCOM ) This fund follows the MSCI USA IMI Telecommunication Services 25/50 Index, holding 30 stocks in its basket. Verizon takes the second spot at 21.5% and, from a sector look, diversified telecom services makes up for 81% of assets. The ETF manages an asset base of just $86.4 million in AUM while the expense ratio is 0.12%. The fund has gained over 2% year to date and currently has a Zacks ETF Rank of 3. iShares U.S. Telecommunications ETF (NYSEARCA: IYZ ) This is also one of the most popular ETFs in the broad telecom space with an AUM of $570 million. The product provides investors exposure to 26 telecom stocks while charging 45 bps in fees and expenses. Verizon takes the top spot in the basket with a 12.9% share. In terms of sector exposure, diversified telecom services accounts for 70% while wireless telecom services takes the rest. IYZ is up 1.4% so far this year, and has a Zacks ETF Rank of 3 or ‘Hold” rating with a ‘Medium’ risk outlook. Scalper1 News
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