On The Fly: What to watch in telecom sector earnings reports

Verizon (VZ) is scheduled to report quarterly results before the market opens on January 23, while AT&T (T) is scheduled to report on January 31 and Sprint (S) is scheduled to report its quarterly results on February 2. T-Mobile (TMUS) has not yet announced its earnings release date. 1. OUTLOOK: When Verizon reported its second quarter results on October 19, 2017, it announced that it sees 2017 organic revenue "fairly consistent" with 2016, with improvement in wireless service revenue and equipment revenue trends. The company also announced it sees full-year 2017 consolidated adjusted EPS trends to be similar to consolidated revenue trends. On October 24, 2017, AT&T reiterated its fiscal 2017 adjusted earnings growth guidance in the mid-single digits. The company also backed FY17 adjusted consolidated operating margin expansion, capital expenditures in the $22B range, and free cash flow at the low end of the $18B range. On October 25, 2017, Sprint reiterated its FY17 adjusted EBITDA view of $10.8B-$11.2B. 2. MERGERS AND ACQUISITIONS: On November 4, 2017, Sprint and T-Mobile jointly announced they have ceased talks to merge as the companies were unable to find mutually agreeable terms. On October 30, 2017, Nikkei reported that SoftBank (SFTBF), planned to break off negotiations and Reuters reported, later that day, that SoftBank was hesitant about giving up control of Sprint. On November 20, 2017, The Department of Justice filed a lawsuit to block the merger between AT&T and Time Warner (TWX). AT&T released the following statement from David R. McAtee II, Senior Executive Vice President and General Counsel: "Today's DoJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent. Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently. Our merger combines Time Warner's content and talent with AT&T's TV, wireless and broadband distribution platforms. The result will help make television more affordable, innovative, interactive and mobile. Fortunately, the Department of Justice doesn't have the final say in this matter. Rather, it bears the burden of proving to the U.S. District Court that the transaction violates the law. We are confident that the Court will reject the Government's claims and permit this merger under longstanding legal precedent." 3. TAX REFORM: On January 17, Verizon disclosed in a regulatory filing that it expects the estimated impact of the Tax Cuts and Jobs Act to its earnings per share to be approximately $4.10. Verizon estimates that the enactment of the TCJA will result in a one-time reduction in net deferred income tax liabilities of approximately $16.8B, due primarily to the re-measurement of U.S. deferred tax liabilities at the lower 21% U.S. federal corporate income tax rate.