Will Lower Revenues Hurt Cincinnati Bell (CBB) Q4 Earnings?

Cincinnati Bell Inc. (NYSE:CBB) is scheduled to report fourth-quarter 2018 results before the opening bell on Feb 14. In the last reported quarter, the company delivered a positive earnings surprise of 5.9%. Notably, Cincinnati Bell was a woeful earnings history in the trailing four quarters, missing the Zacks Consensus Estimate thrice, the average miss being 116.7%.

For the fourth quarter, the company is likely to report lower consolidated revenues on a year-over-year basis due to competitive pressure. Let's find out how things are shaping up prior to the announcement.

Factors to Consider

Cincinnati Bell continues to experience erosion in high margin local access lines. With Digital Subscriber Line and cable modems gaining widespread acceptance, customers are deactivating extra phone lines that were used to access the Internet via dial-up modem. In addition, the shift to wireless services and aggressive rollout of VoIP and long-distance services by Tier-1 competitors in Cincinnati and Dayton have further contributed to access line erosion.

Moreover, Cincinnati Bell is confronting competitive threats from local cable operators that aggressively deploy local phone service in addition to television. This has already resulted in the loss of major business customers. Additionally, improved housing market in Greater Cincinnati has led residents to switch homes, thus increasing multi-tenant Fioptics churn.

Intensifying competition can further be a drag on its pricing power, thereby inducing downward pressure on its margins going ahead. Also, the company has been witnessing a slower pace of ARPU (average revenue per user) growth lately. This is mainly because of the industry’s move toward more standard price bridging strategies for customers leaving promotional-based pricing.

However, Cincinnati Bell is focused on transforming itself from a legacy copper-based telecommunications firm into a technology company with contemporary fiber assets servicing both consumer and business customers with flexible data, video, voice and IP solutions. With a well-designed marketing program, popular brand value and strong reputation of offering high-quality service, the company expects to increase its Entertainment and Communications revenues. Its investments in Fioptics products, which provide entertainment, high-speed Internet, and traditional voice via fiber line to the home, are on an uptrend. Revenue growth in Fioptics along with enterprise fiber-based and VoIP products should negate some of the access line losses in the segment.

The Zacks Consensus Estimate for total revenues for the quarter is pegged at $397 million. In the year-earlier quarter, the company generated revenues of $427 million.

Earnings Whispers

Our proven model does not show that Cincinnati Bell is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at a loss of 14 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cincinnati Bell Inc Price and EPS Surprise

Cincinnati Bell Inc Price and EPS Surprise | Cincinnati Bell Inc Quote

Zacks Rank: Cincinnati Bell has a Zacks Rank #2. While this increases the predictive power of ESP, we need to have a positive ESP to make us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some 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:

GTT Communications, Inc. (NYSE:GTT) is slated to release quarterly numbers on Feb 28. It has an Earnings ESP of +173.53% and a Zacks Rank #2.

CommScope Holding Company, Inc. (NASDAQ:COMM) is scheduled to release results on Feb 21. The company has an Earnings ESP of +6.05% and has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ciena Corporation (NYSE:CIEN) is expected to release quarterly numbers in early March. It has an Earnings ESP of +1.70% and a Zacks Rank #3.

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