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Will Soft Communications Revenues Dent AT&T (T) Q4 Earnings?

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AT&T Inc. T is scheduled to report fourth-quarter 2021 results, before the opening bell, on Jan 26. In the fourth quarter, the Communications segment is likely to have recorded year-over-year lower revenues 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 fourth 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 39 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 the growing adoption of Unlimited Elite wireless plans. Such initiatives might get reflected in the upcoming results.

During the to-be-reported quarter, AT&T introduced comprehensive, advanced security capabilities for 5G network deployments to support its 5G edge computing network solutions, improve threat visibility and pre-empt cyber attacks for 5G-enabled networks. The security-first approach to service design and delivery helps customers to design and scale security services to maximize wireless network investments and offer new opportunities for edge solutions. AT&T also inked multi-year agreements with Frontier Communications to support the deployment of its 5G mobility network. Together with Frontier, AT&T will offer large enterprise customers high-speed, low-latency and highly secure connectivity in markets where it does not own a fiber network. 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.

The U.S. Air Force selected the FirstNet network of AT&T to deliver reliable communications to its public safety personnel across 15 bases across the country. It further helped consolidate the U.S. Coast Guard's disparate data communications networks onto a single modernized data communications platform. These initiatives are likely to have helped the company establish its market-leading position within the law enforcement community.

During the quarter, AT&T collaborated with Ford Motor to enhance the Rouge Electric Vehicle Center by outfitting it with highly secure, next-generation 5G cellular connectivity to develop the new all-electric Ford F-150 Lightning pickup. It partnered with GE Research to explore the possibility of its cross-industry 5G testbed at the research facility in Niskayuna, NY. The addition of AT&T's 5G network will likely provide GE Research with the most advanced networking capabilities to utilize both high and low-band 5G to uncover new opportunities to advance clean energy, air transportation and precision health. In the fourth quarter, AT&T and H2O.ai jointly built an AI Feature Store to manage and reuse data and machine learning engineering capabilities to help data scientists, developers and engineers build AI models. Such technology collaborations are likely to have benefited the company.

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 significant locations with fiber as it aims to expand its fiber builds in metro areas. Continuous infrastructure investments for 5G deployments are further likely to have weighed on the margins. The company has deferred the commercial launch of its C-band 5G wireless service to January 2022 to avert potential disruption in essential safety sensors of aircraft. AT&T has also agreed to minimize the power consumption of C-Band base stations around airports till Jul 6, 2022, as the industry regulators seek to amicably resolve the issue. These are likely to have hurt its Communications segment revenues in the quarter.

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 $29,804 million, indicating a decline from $36,722 million reported in the year-ago quarter. Operating income is pegged at $6,795 million, implying an improvement from $6,558 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $10,851 million, suggesting a fall from $11,145 million.

The Zacks Consensus Estimate for total revenues of the company stands at $40,422 million, indicating a decline from $45,691 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 76 cents per share. It had reported 75 cents in the year-earlier quarter.

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the fourth 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 +0.03%. 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 #3.

Other Stocks to Consider

Here are some other 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:

F5, Inc. FFIV is set to release quarterly numbers on Jan 25. It has an Earnings ESP of +3.65% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Cirrus Logic, Inc. CRUS is +1.48% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Jan 31.

The Earnings ESP for Meta Platforms, Inc. FB is +2.52% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 2.

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

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AT&T Inc. (T) : Free Stock Analysis Report

F5, Inc. (FFIV) : Free Stock Analysis Report

Cirrus Logic, Inc. (CRUS) : Free Stock Analysis Report

Meta Platforms, Inc. (FB) : Free Stock Analysis Report

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