ETF Impact On AT&T Inc. Report [Vanguard Telecommunication Services ETF, iShares S&P Global Telecommunicat. (ETF)]

new etfsRecently, AT&T (NYSE:T) came up with its second-quarter 2014 numbers with both earnings and revenues missing the Zacks Consensus Estimate. The last time that AT&T saw an earnings miss was June 2013 while failure to meet the revenue estimate was seen after two quarters.

2Q Earnings in Focus

The company reported adjusted earnings of 62 cents per share, down 7.5% from the year-ago quarter and a penny short of the Zacks Consensus Estimate pressed by lower margins. Revenues inched up 1.6% year over year to $32.6 billion, but failed to exceed the Zacks Consensus Estimate of $33.2 billion.

A record low churn rate and substantial increase in post-paid wireless subscribers led to the year-over-year revenue growth.  Strong U-verse revenues and strategic business supported the company’s revenue profile to some extent.

However, one analyst commented that although AT&T Next upgrade program contributed a lot in revenues, it hurt operating margins. Despite a lackluster Q2, management reiterated its full-year 2014 guidance.

Market Reaction 

Investors definitely have demanded more from the No. 2 U.S. mobile services provider as AT&T slipped into the red in after-hours trading. Following the earnings release on July 23 after the closing bell, its shares retreated more than 1.00%.

Our most accurate Zacks Consensus Estimate for the full year also does not spur optimism over the stock as the proven model does not conclusively show that AT&T is likely to beat earnings this year. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for AT&T is -2.29% since the Most Accurate estimate is $2.56 while the Zacks Consensus Estimate is $2.62 per share.

Zacks Rank: AT&T holds a Zacks Rank #3 (Hold) which increases the predictive power of the ESP. But the rank when combined with the negative ESP makes surprise prediction difficult.

ETF Impact

AT&T has a sizable exposure (at least 14%) in telecom and technology funds like Vanguard Telecommunication Services ETF (VOX) and iShares Global Telecom ETF (IXP)This suggests that the performance of the fund is highly dependent on AT&T. As a result, the following telecom ETFs could be in watch in the coming days. Below, we have highlighted some of these funds in detail (see: all the Telecom ETFs here).

Vanguard Telecommunication Services ETF (NYSEARCA:VOX)

VOX, a reasonably popular telecom ETF, tracks the MSCI U.S. Investable Market Telecommunication Services 25/50 Index and holds 32 stocks in its basket. The stock-under-review, AT&T, occupies the top position in the basket with 22.2% of assets.

About three-fifths of the portfolio is skewed toward integrated telecom services. VOX lost nearly 0.56% last week (as of July 23, 2014) and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a ‘Medium’ risk outlook.

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