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Will Lower Communications Revenues Hurt 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 third quarter, the Communications segment is likely to have recorded lower revenues year over year owing to continued infrastructure investments for 5G deployment across the country.

Factors at Play

The Communications segment has three business units — Mobility, Entertainment Group, and Business Wireline.

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 38 cities. AT&T is benefiting from lower levels of wireless churn due to access to 5G on its unlimited wireless plans for consumers and businesses and a growing adoption of Unlimited Elite wireless plans. Such initiatives might 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 bringing 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, continued infrastructure investments for extensive fiber connectivity and the deployment of a standards-based nationwide mobile 5G network are likely to have affected the bottom line. 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. The company’s wireline division is struggling with persistent losses in access lines as a result of competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. AT&T is facing a steady decline in linear TV subscribers and legacy services. High-speed Internet revenues are also contracting due to legacy Digital Subscriber Line decline, simplified pricing, and bundle discount. Adverse foreign currency translations, TV content-cost pressure, high programming costs, and new video platform expenses are also likely to have hurt the bottom line.

Overall Expectations

The Zacks Consensus Estimate for revenues from Communications is pegged at $28,183 million, indicating a decline from $34,287 million reported in the year-ago quarter. Operating income is pegged at $7,302 million, implying a decline from $7,648 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $11,366 million, suggesting a fall from $12,275 million.

The Zacks Consensus Estimate for total revenues of the company stands at $40,542 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.

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 +9.66% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 4.