Can Solid WarnerMedia Margins Drive AT&T's (T) Q3 Earnings?

AT&T Inc. (NYSE:T) is scheduled to report third-quarter 2019 results before the opening bell on Oct 28. For the third quarter, the company is likely to have recorded lower revenues due to adverse foreign currency translation despite solid performance of the WarnerMedia business.

Factors at Play

The WarnerMedia segment represents the various business units of the erstwhile Time Warner namely, Turner, Home Box Office and Warner Bros. It also includes AT&T’s Regional Sports Networks in the Turner division and Otter Media.

AT&T is leveraging WarnerMedia’s Turner business to offer enriching advertising content and data analysis to customers. This is likely to get reflected in third-quarter results. The company is improving the relevancy of advertising by pooling a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged passionate fanbases — which is likely to have translated in higher ad revenues in the quarter. WarnerMedia is also expected to have monetized branded content on Turner network by extending ad campaign across Xandr’s addressable TV advertising footprint, spanning 15 million households.

Key Q3 Developments

AT&T announced that WarnerMedia is likely to roll out a streaming service in spring 2020 with an unrivaled bouquet of premium and exclusive content for an impressive direct-to-consumer experience across various age groups. The combination of WarnerMedia’s huge ad inventory with the data provided by AT&T’s large-scale networks offers significant upside potential.

Overall Expectations

Operating income from WarnerMedia is expected to be $2,388 million, up from $1,970 million reported in the previous quarter. EBITDA from the segment is expected to be $2,567 million compared with $2,061 million recorded in the previous quarter.

The Zacks Consensus Estimate for total revenues for the company is pegged at $45,006 million, indicating a decline of 1.6% from $45,739 million reported in the prior-year quarter due to adverse foreign currency translation from Latin American operations. The Zacks Consensus Estimate for earnings is currently pegged at 93 cents per share, up from 90 cents reported in the year-earlier quarter. (Read More: Can Wireless & WarnerMedia Revenues Aid AT&T Q3 Earnings?)

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the third 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 +0.50%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AT&T has a Zacks Rank #3.

Other Stocks to Consider

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

Verizon Communications Inc. (NYSE:VZ) is set to release quarterly numbers on Oct 25. It has an Earnings ESP of +0.03% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for T-Mobile US, Inc. (NYSE:T) is +0.55% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Oct 28.

The Earnings ESP for Sprint Corporation (NYSE:S) is +27.78% and it carries a Zacks Rank of 3. The company is likely to report quarterly numbers on Oct 30.

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