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Will Lower Consolidated Revenues Dent AT&T (T) Q3 Earnings?

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AT&T Inc. (T - Free Report) is scheduled to report third-quarter 2021 results, before the opening bell, on Oct 21. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by 11 cents. In the third quarter, the company is likely to have recorded lower revenues year over year despite improving market conditions due to steady infrastructure investments for 5G deployment across the country.

Factors at Play

In the third quarter, AT&T continued to expand its 5G network infrastructure and launched 5G+ service in select areas. The company’s 5G network currently covers more than 250 million users in 14,000 cities across the country and its 5G+ network is available in parts of 38 cities. AT&T is benefiting from lower levels of wireless churn due to access to 5G technology on its unlimited wireless plans for consumers and businesses and the growing adoption of Unlimited Elite wireless plans. Such initiatives are likely to get reflected in the upcoming results.  

During the to-be-reported quarter, AT&T collaborated with Cisco Systems, Inc. in order to improve the performance of Internet of Things (IoT) applications across the United States. Powered by Cisco, AT&T Control Center gives enterprises near real-time visibility of all IoT devices on their network and helps mitigate security risks. In addition, it extended its long-standing business relationship with Google Cloud to unveil end-to-end solutions for improved customer experiences. The solutions are likely to facilitate diverse businesses to better harness edge connections and edge computing capabilities to swiftly convert data into actionable intelligence, enabling unique digital experiences, and smarter operations. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

During the quarter, AT&T and General Motors Company inked an agreement to take automotive connectivity to the next level by aiming to bring 5G network in the latter’s vehicles that will be manufactured over the next decade in the United States. The partnership aims to sow the seeds of a fifth-generation cellular network architecture in the upcoming models of General Motors while facilitating the existing 4G LTE-capable models to seamlessly migrate to the upgraded technology. AT&T also extended its FirstNet coverage in 10 additional cities in the country. These facilities have enabled the company to expand public communication capabilities with a dedicated broadband network for any emergency support by leveraging its high-quality spectrum, Band 14, for reliable connectivity. This is likely to have led to top-line growth in the third quarter.

However, adverse foreign currency translations and high operating costs for 5G deployments are likely to have led to soft margins in the quarter. The company expects to connect 2.5 million locations with fiber by the end of the year as it continues to expand its fiber builds in metro areas. These infrastructure investments are likely to have weighed on the margins. TV content-cost pressure, high programming costs, and new video platform expenses are also likely to have hurt the bottom line.

Moreover, AT&T apparently lost about 5 million U.S. subscribers as it decided to phase out HBO and HBO Max subscriptions through Amazon Prime Video Channels of to develop direct-to-consumer relationships. Although it halved HBO Max subscription price to $7.49 per month for six months in a limited promotional deal till Sep 26 to woo back the customers, it is likely to have affected the profitability of the WarnerMedia segment.

The Zacks Consensus Estimate for total revenues of the company stands at $40,990 million, indicating a decline from $42,340 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 78 cents per share. It had reported 76 cents in the year-earlier quarter.

Key Developments in Q3

AT&T inked a definitive agreement to sell its Vrio Corp. business unit to Grupo Werthein for an undisclosed amount. Based in Argentina, Grupo Werthein is a private holding company that has been doing business in Latin America and globally for more than a century. The transaction will allow AT&T to sharpen its focus on investing in connectivity for customers. The telecom giant is committed to Latin America through its wireless business in Mexico and services for companies operating in the region.

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.11% with the former pegged at 79 cents and the latter at 78. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AT&T Inc. Price and EPS Surprise

AT&T Inc. Price and EPS Surprise

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Qualcomm Incorporated (QCOM - Free Report) is set to release quarterly numbers on Nov 3. It has an Earnings ESP of +0.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Verizon Communications Inc. (VZ - Free Report) is +0.28% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Oct 20.

The Earnings ESP for T-Mobile US Inc. (TMUS - Free Report) is +18.33% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 4.