Earnings Preview: Consumer Goods And Telecom Ahead

AT&T Earnings: Declining Revenue in Telecom Sector

The only sector in the S&P 500 (SPX) expected to report a year-over-year decline in revenues is the telecom sector, according to FactSet research. Several analysts have cut earnings estimates for companies in the sector due to increased competition with lower-priced unlimited data plans.

In its Q4 2016 investor briefing, AT&T issued the following outlook for 2017: consolidated revenue growth in the low-single digits and adjusted earnings per share growth in the mid-single digit range. In addition to top and bottom-line growth, the company expects adjusted operating margin expansion and capital expenditures in the $22 billion range for the year. Results from its potential $85 billion acquisition of Time Warner Inc TWX, which still requires regulatory approval, were not included in its outlook.

Third-party analysts estimate the company will lose 245,000 postpaid phone subscribers compared to a loss of 363,000 in the first quarter of 2016 (postpaid phone subscribers are customers with service contracts with the carrier). Verizon lost 289,000 postpaid phone subscribers when it reported on April 20, while T-Mobile US Inc TMUS added 789,000 postpaid phone subscribers.

AT&T reports after market close today with expectations for earnings of $0.74 per share on revenue of $40.66 billion, according to consensus third-party analyst estimates. Those projections are close to flat compared to last year’s reported earnings of $0.72 per share on revenue of $40.54 billion in Q1 2016.

Heading into earnings, the options market has priced in about a 2% potential stock move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform. In short-term options trading, calls were active at the 41 and 42 strike prices and puts were active at the 39.5 strike. The implied volatility sits at the 35th percentile and, since early April, the stock was trading in a tight range between about $39.50 and $41.25. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Procter & Gamble Earnings: Turnaround in Declining Revenues?

Revenues at the consumer goods giant have been declining over the past several years; however, management raised its guidance for fiscal 2017 organic sales growth from 2% to a range of 2.5% to 3% in last quarter’s earnings press release. The company maintained guidance for core earnings per share growth of mid-single digits versus fiscal 2016 core EPS of $3.67.  

In past quarters, management has highlighted its focus on cost savings initiatives to counter slowing growth and foreign currency headwinds. The company has focused on closing underperforming plants and upgrading and automating others. Procter & Gamble reports before market open tomorrow with expectations for earnings of $0.94 per share, an 8.8% increase year-over-year, on revenue of $15.69 billion, according to consensus third-party analyst estimates.

The options market has priced in just under a 2% potential stock move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform. In short-term options trading, calls were active at the 89.5 and 90 strike prices while puts were active at the 87 strike. The implied volatility sits at the 32^nd percentile