What To Watch In Telecom Sector Earnings Reports

Verizon (VZ) is scheduled to report quarterly results before the market opens on April 23, while AT&T (T) is scheduled to report before the market opens on April 24. What to watch for:

1. VERIZON'S OUTLOOK: When Verizon reported its fourth quarter results on January 29, the company issued guidance saying it sees FY19 adjusted earnings per share "similar" to FY18 adjusted EPS result of $4.71. Analysts were expecting EPS of $4.73 at that time, and current consensus estimates sit at $4.66. The telecom giant also announced it expects FY19 revenue up in the low single-digit percentage range. The new lease accounting standard is expected to have an approximately 1c-2c per quarter headwind impact on EPS for FY19. The company also announced it sees capital spending for FY19 of $17B-$18B, including the expanded commercial launch of 5G and FY19 tax rate of 24%-26%.

2. AT&T'S OUTLOOK: When AT&T reported its fourth quarter results on January 30, the company announced FY19 adjusted EPS expectations of low single-digit adjusted EPS growth. The company also said it expects FY19 free cash flow of approximately $26B. The company added that it sees FY19 dividend payout ratio around the high 50s%, end-of-year net debt to adjusted EBITDA about 2.5x, and gross capital investment of around $23B.

On March 13, AT&T CFO John Stephens spoke at the Deutsche Bank Media, Internet and Telecom Conference. He discussed AT&T's 2019 guidance and priorities, which were consistent with previous remarks he made on February 27 at the Morgan Stanley Technology, Media and Telecom Conference. AT&T's guidance, announced in January 2019, is unchanged; however, Stephens reiterated that EPS on a quarter-by-quarter basis may vary from historical trends given the inclusion of results from WarnerMedia, which AT&T acquired in June 2018.

3. VERIZON CHAIRMAN RETIRES: On February 8, Verizon announced that its board elected CEO Hans Vestberg as chairman, effective March 8. Lowell McAdam retired as Verizon's chairman on that date and remains on the board until the company's annual meeting of shareholders on May 2. In addition, the board elected Clarence Otis as lead director, effective March 8. Otis will succeed Frances Keeth, who is retiring from the board in May in accordance with the board's mandatory retirement policy. Verizon currently has 12 board members. 

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