Will AT&T Earnings Move the Dow?

With dozens of companies having reported quarterly results, we're in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk decision.

Let's turn to AT&T (NYSE: T  ) . With its stock gaining 17% in 2012, Ma Bell was one of the best performers among the Dow Jones Industrials (DJINDICES: ^DJI  ) . But as concerns arise about the iPhone 5 and the future of many of the devices that have pushed AT&T's wireless network to such strong growth, investors will be listening closely to what AT&T says about conditions within the industry. Let's take an early look at what's been happening with AT&T over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on AT&T

Analyst EPS Estimate

$0.46

Change From Year-Ago EPS

9.5%

Revenue Estimate

$32.2 billion

Change From Year-Ago Revenue

(0.9%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo Finance.

Will AT&T move the markets?
Over the past three months, analysts have reduced their expectations for AT&T's fourth quarter, lopping about 10% off their earnings-per-share estimates for the period. Those concerns have also reined in enthusiasm about the stock, as the share price has fallen by 6% since mid-October.

AT&T provided some clues for investors last week when it gave an early update on how its fourth quarter went. The headline news from the SEC filing was a $10 billion charge related to its pension plans, stemming from reductions in return assumptions. The company also updated its smartphone sales to 10.2 million but warned that the subsidies it pays on devices will affect margins and earnings for the quarter. Hurricane Sandy also had an impact on the quarter's results, costing AT&T about $175 million in operating income.

The U.S. wireless-network industry has gotten a lot more complicated in the past quarter, as the Softbank capital infusion into Sprint (NYSE: S  ) has made the No. 3 carrier a viable competitor once more. Sprint hasn't yet made big moves to challenge AT&T, but it inevitably will, and AT&T needs to consider ways to fend off the up-and-coming carrier in order to defend its market share.

Perhaps as a result of U.S. competitive pressures, AT&T is considering going beyond its traditional borders to compete in Europe. Yet while AT&T may feel hamstrung by the lack of growth opportunities in the U.S., it's unclear whether Europe is truly any greener a pasture. France Telecom (NYSE: ORAN  ) and Telefonica have already had to reduce or suspend their dividends because of unfavorable economic conditions across the continent, and given the regulatory challenges that those companies have faced, AT&T may not fare much better.

In assessing AT&T's quarterly results, investors should remember that the release of the iPhone 5 will skew profits, as subsidies cost AT&T initially but pay the carrier back in extra subscription fees throughout the terms of two-year contracts. If the stock sells off based on high subsidy-related charges, it could present a valuable buying opportunity.

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