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Will The Postpaid Momentum Continue?


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Hans Vestberg, chief executive officer of Verizon Communications Inc., speaks during the Samsung Electronics Co. Unpacked launch event in San Francisco, California, U.S. on Wednesday, Feb. 20, 2019. Photographer: David Paul Morris/Bloomberg

© 2019 Bloomberg Finance LP

Verizon is expected to publish its Q1 FY’19 earnings on Tuesday, April 23. Below, we take a look at some of the key trends we will be watching when the company reports results.

What to expect from Verizon’s Q1 results:

  • Consensus EPS of $1.17 per share, almost flat year-over-year
  • Consensus revenue of $32.3 billion, a slight increase over Q1 FY’18

What are some of the factors impacting the sluggish growth?

  • While revenues will expand modestly, driven by stronger postpaid phone performance, this will be partly offset by declines in the wireline business.
  • Earnings may be impacted by a slightly higher tax rate, as tax benefits that were realized in 2018 are unlikely to repeat this year

What is driving the postpaid business?

  • Postpaid wireless business accounted for ~45% of revenues in FY’18
  • Over Q4, the carrier added 653k phone subscribers, marking a 295k sequential increase. While growth should continue driven by the “mix and match” offering, which allows family plan users to customize individual lines, net adds could slow sequentially.
  • Postpaid phone churn, which stood at 0.82% last quarter, could come under pressure due to higher competition

How is Verizon’s 5G rollout progressing?

  • Verizon was the first to offer 5G services in the U.S. on a commercial basis, launching 5G home broadband 4 cities in October 2018.
  • We will be looking for updates on how the 5G home business is faring and for updates on the commercial launch of 5G mobility services
  • The company expects CapEx for the year to rise to as much as $18 billion, driven by the 5G rollout.

Our interactive dashboard on What’s Driving Our Valuation For Verizon details our key forecasts and drivers for the company. You can modify any of our forecasts and estimates to gauge the impact changes would have on the company’s valuation.

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Batteries, Offshore Wind Lead Clean Energy Cost Cuts As Renewables Continue To Undercut Coal And Gas


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Batteries can store energy from solar or wind farms for use when the wind is not blowing or the sun is not shining.

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The transition to a low-carbon energy system is a few steps closer after two technologies that were immature and hugely expensive only a few years ago saw spectacular gains in cost-competitiveness in the last year.

New research from Bloomberg NEF (BNEF) shows that the cost of lithium-ion batteries has fallen by 35% over the past year to $187/MWh, while the cost of offshore wind is almost a quarter (24%) lower than this time 12 months ago.

Meanwhile, the costs of installing the more established technologies of onshore wind and photovoltaic (PV) solar also continued to fall. The levelized cost of energy for onshore wind projects starting construction at the start of this year was $50/MWh, 10% lower than a year ago, while solar projects are 18% cheaper at 57/MWh.

Elena Giannakopoulou, head of energy economics at BNEF, commented: “Looking back over this decade, there have been staggering improvements in the cost-competitiveness of these low-carbon options, thanks to technology innovation, economies of scale, stiff price competition and manufacturing experience.

“Our analysis shows that the LCOE per megawatt-hour for onshore wind, solar PV and offshore wind have fallen by 49%, 84% and 56% respectively since 2010 . That for lithium-ion battery storage has dropped by 76% since 2012, based on recent project costs and historical battery pack prices.”

The fall in the cost of batteries is important because it opens up new opportunities for intermittent renewables including solar and wind to do many of the jobs that coal- and gas-fired power stations and nuclear, currently do.

Battery energy storage co-located with solar and wind farms are starting to be competitive with coal and gas power, even without subsidies, in providing “dispatchable power” that can be delivered when it is needed, rather than only at the time it is being generated when the wind is blowing or the sun is shining. Battery storage can provide back-up power for renewable projects for anything from one to four hours at a time, BNEF says.

Tifenn Brandily, energy economics analyst at BNEF, said: “Solar PV and onshore wind have won the race to be the cheapest sources of new ‘bulk generation’ in most countries, but the encroachment of clean technologies is now going well beyond that, threatening the balancing role that gas-fired plant operators, in particular, have been hoping to play.”

The advance of offshore wind is also hugely significant, because the technology has long been seen as an expensive generation option in the near term compared to onshore wind or solar PV, although it was hoped that in time the possibility of using bigger turbines and floating platforms, coupled with the stronger and steadier winds at sea would lead to sharp cost reductions.

But those costs have come down much more quickly than forecast thanks to technological advances, larger turbines and auction programs for new capacity – offshore wind is now below $100/MWh globally, with some European projects coming in well below that, compared to more than $220 just five years ago. Siemens Gamesa has just announced its 10MW turbines will be used in the world’s first subsidy-free offshore wind project, Vattenfall’s Hollandse Kust Zuid 1 & 2 scheme.

“The low prices promised by offshore wind tenders throughout Europe are now materializing, with several high-profile projects reaching financial close in recent months. Its cost decline in the last six months is the sharpest we have seen for any technology,” Giannakopoulou said.

 



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North America Could Continue To Weigh On Halliburton’s Results


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Attendees pass in front of the Halliburton Co. booth during the 2018 Offshore Technology Conference (OTC) in Houston, Texas. Photographer: Aaron M. Sprecher/Bloomberg

© 2018 Bloomberg Finance LP

Halliburton, the second-largest oilfield services provider, is expected to publish its Q1 2019 results on April 22. This note discusses Trefis’ expectations, as well as consensus estimates, for the company’s earnings.

What to expect from Halliburton in Q1 2019?

  • Consensus earnings expectations stand at ~ $0.22 per share, marking a 45% decline year
  • Consensus revenue expectations of $5.5 billion represent a slight year-over-year decline

What trends will drive the company’s results?

  • Halliburton is likely to underperform in the North American market (which accounted for ~60% of 2018 revenue), although international operations will fare better.
  • Average North American rig count over the quarter down 1% year-over-year, versus growth of 6% in international rig count
  • While crude oil prices also saw a modest recovery over the quarter, it is unlikely to have benefited results.

Why Is North America expected to underperform?

  • In the on-shore U.S. market, operators are looking to align investments to their cash flows, likely reducing oilfield services spending.
  • Operators could be focusing on spending on the inventory of drilled but uncompleted wells, reducing drilling-related activity.
  • Pipeline capacity in the Permian – the largest U.S. shale basin – is likely to remain a constraint until H2’19, weighing on activity in the region.
  • There has also been a meaningful decline in Canadian activity, with the average rig count down 30% year-over-year.

What about international markets?

  • Weather-related seasonality and the roll-off of higher-margin year-end product/software sales will result in a sequential decline in international revenue.
  • However, there could be a year-over-year improvement, driven by rising activity in markets such as Africa and the Asia Pacific
  • Moreover, equipment availability is expected to be tightening, potentially helping pricing.

View our interactive dashboard analysis on What’s Driving Our Price Estimate For Halliburton. You can change key drivers to arrive at your own price estimate for the company. In addition, you can see all our data for Energy Companies here.

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Bed Bath & Beyond’s Challenges Likely To Continue Through 2019


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Customers enter a Bed Bath & Beyond Inc. store in Charlotte, North Carolina. Photographer: Logan Cyrus/Bloomberg

© 2018 Bloomberg Finance LP

Bed Bath & Beyond reported mixed Q4 results on April 10. This was largely due to mixed holiday-season sales, with revenue declining at its physical stores and rising only modestly in the online channel. For full-year 2018, Bed Bath & Beyond’s revenue declined 3% year-over-year (y-o-y) to $12 billion, as a 1.1% decrease in comparable sales was partially offset by an increase in non-comparable sales, including One Kings Lane, PMall, and new stores. The net sales were also impacted by one less week in the year compared to fiscal 2017. The retailer’s comparable store sales declined in the mid-single-digit percentage range.

We have created an interactive dashboard on How Did Bed Bath & Beyond Fare In 2018, And What Can We Expect In Fiscal 2019?, which outlines our forecasts for the company. You can change the expected revenue, operating margins and net margin figures for the company to gauge how it will impact its earnings in 2019. In addition, you can also see more Trefis Consumer Discretionary company data here.

Detailing Fiscal 2019 Forecast

  • Revenues: Bed Bath & Beyond expects its net sales to range between $11.4 billion and $11.7 billion, driven by the continued declines in in-store traffic as well as actions being taken in support of prioritizing profitability over near term sales growth.
    • Comparable Sales are expected to decrease in the low- to mid-single-digit percentage range, due to low same-store sales, partially offset by anticipated growth in digital channels as well as optimization of its coupon strategy.
  • Gross Margin:
    • BBBY’s gross margins declined from 37.5% in 2016 to 34.1% in 2018, due to the increase in net direct-to-customer shipping expenses as the primary reason – which resulted from more promotional shipping activity.
    • We expect the company’s gross margins to slightly increase to 34.5% in fiscal 2019. Our forecast is based on company’s initiatives which include driving sales to higher-margin categories, including private label and proprietary brands.
  • Expenses :
    • BBBY’s total expenses have grown from $11 billion in 2016 to $12.1 billion in 2018.
    • We expect the company’s expenses to decline y-o-y in 2019, due to a decrease in Selling, General and Administrative (SG&A) costs
    • The company expects to offset external wage pressures by improving store productivity in 2019.
  • EPS:
    • BBBY earlier stated that it planned to moderate operating profit declines and grow net earnings per diluted share by fiscal 2020. It also expected its fiscal 2019 net earnings per diluted share to be about the same as fiscal 2018. However, the company guided for strong EPS of $2.11 to $2.20 along with the Q4 earnings report, compared to a consensus estimate mark of $1.82 for 2019.

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