Due to postpaid services that are expected to hamper Verizon (NYSE:$VZ), analysts are expecting the mobile company to report unsatisfactory revenue figures when the company releases earnings on July 27, 2017. In addition to a squeeze in the top line, there has been no evidence of operational improvements for the second quarter. This increases the likelihood that Verizon will miss Earnings Per Share (EPS) estimates.

Recent Concerns and Management Guidance

As people become increasingly concerned of Verizon’s ability to issue dividends, the company’s stock price also continues to fall. This is strongly reflected in as Verizon’s disappointing Q1 report earlier this year (2017, as  total wireless operating revenue declined by 5.1%.

Matthew D. Ellis, CFO, dismissed this headwind as a trend:

“Total Wireless operating revenue declined 5.1% in the first quarter. We experienced the change in the service revenue trend, which had been improving sequentially. Service revenue declined 6.1% year-over-year compared to the 4.9% decrease in the previous quarter. The service revenue pressure was a result of decreased overage revenue, lower postpaid customers in the quarter and promotional activity.”

Management Expected Continued Pressure For 2Q

Judging from what CFO Ellis explained during the earnings call, it almost seems like a warning to investors of further expected declines.

When questioned by UBS analyst John Hodulik on whether or not the trend will worsen, CFO Ellis responded:

“And as we go forward, we should expect to see that continue in the second quarter and then we expect we’ll see the trend in wireless service revenue start to improve in the second half of the year. So we do think you’ll see another quarter of some pressure in wireless ARPA before we see it head up again.”

Although there was no guidance for the worse, depressed performance due to these headwinds has been confirmed to persist, and has been priced into many analyst expectations. Consensus revenue estimates currently sit at $28.89B, compared to revenues of $30.53 billion from 2Q16.

Blast From The Past

Another factor that must be considered is Verizon’s sale of some company assets to Frontier for approximately $10B. As Buffet says, “cash is king”, but as enticing as a figure that $10B seems to be, investors must realize that the sale of such assets effectively leaves Verizon with less ability to generate revenue in the future. That is, if management doesn’t make appropriate use of the cash received, then Verizon essentially traded recurring long term cash flows for a singular cash payout.

As the assets were worth $0.10 a share in earnings, you could simply subtract the $0.10 to arrive at a normalized EPS for the first quarter.

However, as the assets were actually sold in the second quarter of 2016, the upcoming earnings are a little more difficult to assess. In order to figure out the adjusted EPS for Verizon’s 2Q17 earnings release, we need to figure out how much those assets contributed to 2Q16 earnings, so we can subtract the effect it would have had. The most simple way to calculate this is to find out how and when the deal closed.

To our benefit, Verizon makes this a very simple task, as a breakdown was provided: “For purposes of comparability in the Wireline segment, the historical results of the operations that we sold to Frontier on April 1, 2016 have been reclassified to Corporate and Other.”

The sale date was detailed to have taken place on April 1st, which was the start of the second quarter. As a result, the 2Q16 EPS report is a viable starting point.

Wall Street’s Analysts Have Implied Improvements In Margins

2Q16 saw adjusted non-GAAP EPS results of $0.94. Although revenue is expected to fall by just over 2%, Wall Street has projected 2Q17 EPS to finish at $0.96, which is just over a 2% increase.

To put that into perspective, Wall Street is expecting Verizon to increase earnings, while management has guided downwards pressure for revenue, which implies expectation for margin growth. If margins were kept consistent, the $0.96 projection should look -2% lower, at ~$0.94, which will mean an earnings miss.

What To Keep an Eye On

It seems that Wall Street has turned a blind eye to more concerning aspects of management guidance, and have granted Verizon the benefit of the doubt. However, all indicators have implied that Verizon is positioned to miss on earnings estimates. Despite shares hovering about 52-week lows, this could potentially compound on the dividend worries and be a stimulus for further declines.

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