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Will Revenue Contraction Affect AT&T's (T) Q2 Earnings?

·5 min read

AT&T Inc. T is scheduled to report second-quarter 2022 results, before the opening bell, on Jul 21. In the last reported quarter, adjusted earnings missed the Zacks Consensus Estimate by a penny. In the second quarter, the company is likely to have recorded lower revenues year over year despite improving market conditions due to continued infrastructure investments for 5G rollout across the country, spin-off and divestment of businesses.

Factors at Play

In the second 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 277 million users across the country and its 5G+ network is available in parts of 40 cities. AT&T deployed the C-Band spectrum in a phased manner in the second quarter to further expand its 5G+ coverage and delayed deployment near airports as part of the FAA deal. The company aims to reach 70 million to 75 million people by the end of 2022 with its 5G+ service and targets to cover up to 200 million people in 2023. It is benefiting from lower levels of wireless churn due to seamless 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 Northrop Grumman to deliver an open-architecture solution to help the DoD connect sensors and data from all domains. The collaboration brings together some of the best capabilities in defense and commercial communications to meet the evolving requirements of Joint All Domain Command and Control. It will help the DoD develop high-performing and intuitive technologies that seamlessly share data across secure networks. This, in turn, will likely facilitate it to differentiate its 5G offering and gain a competitive advantage by bundling relevant use cases and tariff features to drive higher 5G consumer adoption. This is likely to have translated into higher revenues for the company.

During the quarter, AT&T continued with its aggressive fiber build-out initiatives as it aims to connect 3.5-4 million additional locations with fiber each year to significantly increase its existing fiber footprint to more than 30 million locations by the end of 2025. The company expects that 75% of its network footprint will be either served by fiber or 5G, which will likely halve its legacy copper services exposure. These simplification initiatives are likely to have driven additional cost savings while creating new revenue opportunities.

However, adverse foreign currency translations and high operating costs for 5G deployments and fiber expansion are likely to have led to soft margins in the quarter. The infrastructure investments are expected to have weighed on the margins. Moreover, AT&T has divested its advertising and analytics division, Xandr, to Microsoft and has completed the spin-off of WarnerMedia to Discovery during the quarter. The transaction might enable the carrier to trim its huge debt burden and focus on core businesses. The divestitures are likely to have contracted the revenue base on a year-over-year basis.

The Zacks Consensus Estimate for total revenues of the company stands at $29,318 million, indicating a decline from $44,045 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 59 cents per share. It had reported 89 cents in the year-earlier quarter.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the second 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 not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.61%, with the former pegged at 60 cents and the latter at 59 cents. 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 and EPS Surprise

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

Zacks Rank: AT&T has a Zacks Rank #4 (Sell).

Stocks to Consider

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

TELUS Corporation TU is set to release quarterly numbers on Jul 29. It has an Earnings ESP of +25.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Qorvo Inc. QRVO is +0.41% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Aug 3.

The Earnings ESP for Apple Inc. AAPL is +0.88% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 28.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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