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Will Soft Communications Revenues Dent AT&T (T) Q4 Earnings?
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AT&T Inc. (T - Free Report) is scheduled to report fourth-quarter 2023 results on Jan 24, before the opening bell. In the fourth quarter, the Communications segment is likely to have recorded year-over-year lower revenues despite a healthy traction in the wireless business, owing to a challenging macroeconomic environment.
Factors at Play
The Communications segment has three business units — Mobility, Entertainment Group and Business Wireline.
In the fourth quarter, AT&T inked a five-year contract with Ericsson to modernize its network infrastructure. AT&T intends to leverage Ericsson technology to deploy a commercial-scale open radio access network (Open RAN) across the country to help build a more robust ecosystem of network infrastructure providers and suppliers.
The Open RAN architecture facilitates healthy competition among vendors for the supply of essential components and reduces dependence on a single manufacturer. It is likely to offer more flexibility, lower costs and help develop novel ideas to monetize the network. This is likely to have enabled it to move away from closed proprietary interfaces for rapid scaling and management of mixed supplier hardware at each cell site. Such initiatives are likely to have had a favorable impact on the company’s fourth-quarter performance.
During the fourth 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 75% of its network footprint to 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. The extensive fiber footprint is expected to minimize its maintenance and repair costs while generating higher ARPU.
With a disciplined and sustainable go-to-market strategy, AT&T is likely to have witnessed solid postpaid phone additions backed by healthy demand trends and improved quality of service. In addition, the convergence of scaled wireless and fiber networks is likely to have yielded economic benefits with multiple services under a single platform – 5G, fiber and fixed wireless access. Postpaid phone net additions in the fourth quarter are expected to have grown sequentially to around 500,000. The company also expects fiber net adds in the 250,000 range, which is reflective of normal seasonality. These are likely to have translated into incremental revenues in the upcoming quarter.
However, adverse foreign currency translations and high operating costs for 5G deployments are likely to have led to soft margins in the fourth quarter. Continuous infrastructure investments for fiber and 5G deployments might have weighed on the margins.
The company’s wireline division has been 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 has been facing a steady decline in linear TV subscribers and legacy services. High-speed Internet revenues are also contracting due to the legacy Digital Subscriber Line decline, simplified pricing and bundle discounts.
Our estimate for revenues from the Communications segment is pegged at $30,326.4 million, indicating a decrease from $30,365 million reported in the year-ago quarter. Our estimate for operating income from the segment stands at $6,100.3 million, suggesting a decline from $6,577 million.
Overall Expectations
The Zacks Consensus Estimate for total revenues is pegged at $31,459 million, indicating a marginal increase from $31,343 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 55 cents per share. It had reported earnings of 61 cents per share 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 exactly the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.30%. While the Most Accurate Estimate is pegged at 56 cents, the consensus estimate is 55 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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:
The Earnings ESP for Silicon Motion Technology Corporation (SIMO - Free Report) is +4.92% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Feb 6.
The Earnings ESP for Meta Platforms, Inc. (META - Free Report) is +1.46% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Feb 1.
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Will Soft Communications Revenues Dent AT&T (T) Q4 Earnings?
AT&T Inc. (T - Free Report) is scheduled to report fourth-quarter 2023 results on Jan 24, before the opening bell. In the fourth quarter, the Communications segment is likely to have recorded year-over-year lower revenues despite a healthy traction in the wireless business, owing to a challenging macroeconomic environment.
Factors at Play
The Communications segment has three business units — Mobility, Entertainment Group and Business Wireline.
In the fourth quarter, AT&T inked a five-year contract with Ericsson to modernize its network infrastructure. AT&T intends to leverage Ericsson technology to deploy a commercial-scale open radio access network (Open RAN) across the country to help build a more robust ecosystem of network infrastructure providers and suppliers.
The Open RAN architecture facilitates healthy competition among vendors for the supply of essential components and reduces dependence on a single manufacturer. It is likely to offer more flexibility, lower costs and help develop novel ideas to monetize the network. This is likely to have enabled it to move away from closed proprietary interfaces for rapid scaling and management of mixed supplier hardware at each cell site. Such initiatives are likely to have had a favorable impact on the company’s fourth-quarter performance.
During the fourth 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 75% of its network footprint to 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. The extensive fiber footprint is expected to minimize its maintenance and repair costs while generating higher ARPU.
With a disciplined and sustainable go-to-market strategy, AT&T is likely to have witnessed solid postpaid phone additions backed by healthy demand trends and improved quality of service. In addition, the convergence of scaled wireless and fiber networks is likely to have yielded economic benefits with multiple services under a single platform – 5G, fiber and fixed wireless access. Postpaid phone net additions in the fourth quarter are expected to have grown sequentially to around 500,000. The company also expects fiber net adds in the 250,000 range, which is reflective of normal seasonality. These are likely to have translated into incremental revenues in the upcoming quarter.
However, adverse foreign currency translations and high operating costs for 5G deployments are likely to have led to soft margins in the fourth quarter. Continuous infrastructure investments for fiber and 5G deployments might have weighed on the margins.
The company’s wireline division has been 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 has been facing a steady decline in linear TV subscribers and legacy services. High-speed Internet revenues are also contracting due to the legacy Digital Subscriber Line decline, simplified pricing and bundle discounts.
Our estimate for revenues from the Communications segment is pegged at $30,326.4 million, indicating a decrease from $30,365 million reported in the year-ago quarter. Our estimate for operating income from the segment stands at $6,100.3 million, suggesting a decline from $6,577 million.
Overall Expectations
The Zacks Consensus Estimate for total revenues is pegged at $31,459 million, indicating a marginal increase from $31,343 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 55 cents per share. It had reported earnings of 61 cents per share 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 exactly the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.30%. While the Most Accurate Estimate is pegged at 56 cents, the consensus estimate is 55 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-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 Jan 31. It has an Earnings ESP of +3.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for Silicon Motion Technology Corporation (SIMO - Free Report) is +4.92% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Feb 6.
The Earnings ESP for Meta Platforms, Inc. (META - Free Report) is +1.46% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Feb 1.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.