The US Securities and Exchange Commission (SEC) is suing AT&T for offering nonpublic data to twenty totally different analyst companies so they’d decrease income estimates forward of earnings, in keeping with a press launch. That let AT&T “beat” expectations for the quarter when the information-sharing befell, turning what may have been some nasty headlines within the monetary press right into a win as a substitute.
According to the SEC’s grievance (PDF), AT&T discovered in March 2016 that its quarterly outcomes would fall wanting estimates due partially to “a steeper-than-expected decline in smartphone gross sales.” As you would possibly recall, we used to dwell in a world the place carriers like AT&T sponsored a part of the price of your smartphone, however by then AT&T had handed that price alongside to the client — which meant far fewer clients have been upgrading them yearly or two.
This quarter was going to be AT&T’s worst-ever for smartphone upgrades: a document low of simply 5 p.c, in keeping with the grievance. As a consequence, AT&T anticipated that its consolidated gross income “was anticipated to fall greater than $1 billion under the consensus estimate.”
Here is what occurred subsequent, from the grievance:

Fearful of a income miss on the finish of the quarter, AT&T’s Chief Financial Officer instructed AT&T’s IR Department to “work the analysts who nonetheless have tools income too excessive.”
In flip, the Director of Investor Relations (“IR Director”) instructed Womack, Evans, and Black to talk to analysts privately on a one-by-one foundation about their estimates so as to “stroll the analysts down”—i.e., induce analysts to cut back their particular person estimates. The purpose was to induce sufficient analysts to decrease their estimates in order that the consensus income estimate would fall to the extent that AT&T anticipated to report back to the general public—i.e., AT&T wouldn’t have a income miss, which might have been the corporate’s third consecutive quarterly miss.

In their calls, the three IR executives “deliberately disclosed materials nonpublic data concerning AT&T’s outcomes to this point,” the SEC alleges. Of the 20 analyst companies listed within the grievance, all of them lowered their income estimates — and plenty of took AT&T’s 5 p.c quantity immediately. The SEC means that AT&T’s executives hid the truth that these numbers weren’t the sort which might be alleged to be shared, so analysts might not have identified that they shouldn’t have had entry to that data.
Executives emailed amongst themselves the day earlier than its Q1 2016 earnings in reduction, the grievance reveals. The firm’s CFO even apparently informed the CEO that two analyst updates “might do it for us,” with the CEO replying, “Good.”

This is AT&T anxiously pushing analysts to decrease estimates so {that a} single quarter of earnings would not create unhealthy headlines, regardless that the outcomes stink. And it goes all the best way to the highest, per the SEC. Just one other reminder of what CEOs truly care about in non-public.— Dave Benoit (@DaveCBenoit) March 5, 2021

AT&T ended up reporting $40.535 billion in income for Q1 2016, barely beating the revised consensus analyst estimates by lower than $100 million, in keeping with the grievance.
The firm disputed the SEC’s allegations in an announcement, claiming that “there was no disclosure of fabric nonpublic data”.
“The data mentioned throughout these March and April 2016 conversations involved the extensively reported, industry-wide phase-out of subsidy packages for brand new smartphone purchases and the impression of this development on smartphone improve charges and tools income,” the corporate says.
“Not solely did AT&T publicly disclose this development on a number of events earlier than the analyst calls in query, however AT&T additionally made clear that the declining telephone gross sales had no materials impression on its earnings,” it continued. “Analysts and the information media steadily wrote about this development and traders understood that AT&T’s core enterprise was promoting connectivity (i.e., wi-fi service plans), not gadgets, and that smartphone gross sales have been immaterial to the corporate’s earnings.”