By Thomas Gryta
AT&T Corp. will report third-quarter financial results after
the markets close on Wednesday afternoon. Here is what you need to
know:
EARNINGS FORECAST: Earnings of 64 cents a share is the average
of analysts surveyed by Thomson Reuters, compared with earnings of
66 cents a year ago.
REVENUE FORECAST: Revenue of $33.2 billion is forecast, compared
with $32.2 billion last year.
WHAT TO WATCH FOR:
--IPHONE EFFECT: Once the exclusive seller of the iconic device,
AT&T is still intertwined with the iPhone. MoffettNathanson
estimates that 75% of smartphone sales at the carrier are iPhones,
compared with 50% at Verizon. Wall Street will listen for customer
adoption trends of AT&T's no-contract Next plans, through which
customers pay full price for smartphones using monthly
installments. The move away from traditional smartphone subsidies
and service contracts will relieve some of the margin pressure that
usually accompanies a new iPhone. Wireless margins could hit 40% in
the fourth quarter, a feat unseen at AT&T since 2009.
--COMPETITION: After years with little movement, AT&T and
Verizon are facing greater competition from T-Mobile and Sprint.
AT&T has made its own moves and maintained low churn--a measure
of service cancellations--partly by moving much of its customer
base to cheaper plans. AT&T has said churn for the quarter will
be 1% or lower, but investors are watching whether low churn will
continue or if subscribers with discounted pricing will jump ship
with the next device upgrade. Verizon reported its highest
third-quarter churn in four years on Tuesday, according to data
from UBS.
--CAPITAL EXPENDITURE: Investors will be looking for hints about
AT&T's spending plans for coming years or even the last months
of 2014 amid concerns that its cash flow leaves it with little
margin to spare after covering its dividend. AT&T expects about
$21 billion in capital expenditure this year and $11 billion in
free cash flow, with about 91% of that paying the company's
dividend, estimates Morgan Stanley.
--DIRECTV DEAL: AT&T's planned acquisition of DirecTV for
$49 billion is projected to close in the first half of 2015, but
not before it goes through the regulatory ringer. DirecTV met a key
component of the deal in recently extending its broadcasting deal
with the National Football League. Wall Street will be probing for
insights on any advantageous terms of that eight-year deal along
with any indication of regulatory concessions or hurdles.
--OTHER DEALMAKING: AT&T is a huge company built on a pile
of massive mergers. Even with the DirecTV deal pending, the company
hasn't ruled out other moves. Investors will look for the company's
commentary on the strategy around possibly buying Mexican assets
from former partner America Movil or doing more content deals.
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