AT&T Misses Earnings as Costs Rise

Zacks

Leading communications firm AT&T Inc. (T) reported second-quarter 2013 adjusted earnings per share of 67 cents, missing the Zacks Consensus Estimate by a penny. The company’s performance was hurt by steeper cost of service and sales. Comparing year over year, the results improved 1.5% from adjusted earnings of 66 cents.

Quarterly revenues increased 1.6% from the prior-year quarter to $32.1 billion and surpassed the Zacks Consensus Estimate of $31.8 billion. Excluding the impact of Advertising Solutions unit sale, revenues increased 2.6% year over year. The growth was attributed to efficient network operations and an expanding broadband segment.

Operating income decreased 10.3% year over year to $6.1 billion, while operating expenses increased 4.9% year over year to $25.9 billion.

Segment Results

Wireless revenues, including equipment sales, rose 5.7% year over year to $17.3 billion in the quarter, primarily on the higher number of smartphones sold and more upgrades. Wireless data revenues leaped 19.8% year over year to approximately $5.4 billion, driven by Internet access, multimedia and text messages.

AT&T added 632,000 wireless customers in the reported quarter, totaling 107.9 million. This was primarily due to continued adoption of smartphones, including Apple Inc.’s (AAPL) iPhones and Google Inc.’s (GOOG) Android-based phones.

Retail post-paid additions were 551,000 and connected device additions were 484,000. The company added only 11,000 prepaid customers and lost 414,000 reseller users due to less or no account usage.

The company added 1.2 million post-paid smartphone users and sold 6.8 million smartphones of which 88% comprised post-paid phone sales. At quarter end, nearly 73% of the post-paid phone users of AT&T used smartphones. Almost 65% post-paid smartphone subscribers have 4G-based handsets.

Total churn was 1.36% compared with 1.18% in the prior-year quarter. Post-paid ARPU (average revenue per user) grew 1.8% year over year to $66.12, driven by healthy data growth.

Wireline revenues dipped 0.9% year over year to $14.8 billion. Although the company experienced growth in U-verse TV and High Speed Internet segments, lower voice and legacy revenues impacted the overall revenue figure.

Revenues from residential customers increased 2.4% year over year to $5.6 billion, driven by robust activities in consumer IP data services. Business revenues slid 2.2% year over year to $8.9 billion, reflecting a drop in legacy service. Strategic business services such as Ethernet, Virtual Private Networks, hosting, IP conferencing and application services, increased 15.0% year over year.

AT&T's total U-verse subscribers, which include TV and high-speed Internet customers, touched 9.4 million at the end of the second quarter. Total U-verse TV subscribers reached 5.0 million (233,000 users added) and high-speed Internet users touched 9.1 million (641,000 subscribers added).

Financials

As of Jun 30, 2013, AT&T had $4.6 billion in cash and cash equivalents. The company had long-term debt (including current portion) of $75.2 billion, representing a debt-to-capitalization ratio of 46.6%.

AT&T generated $9.5 billion of cash from operations in the quarter, while capital expenditure totaled $5.5 billion.  The company repurchased 89 million shares for $3.3 billion.

Another Major Telecom Stock

Another U.S. mobile service giant Verizon Communications Inc. (VZ) reported second quarter 2013 earnings of 73 cents per share, in line with the Zacks Consensus Estimate. The results improved 14.1% from 64 cents a year ago.

Our Take

AT&T currently holds a Zacks Rank #3 (Hold). We believe that AT&T will benefit from consistent launch of new and attractive data plans along with the introduction of updated and hardy smartphones. The company is also continuously collaborating with several companies to strengthen its presence within the domestic market as well as spread its operational wings to overseas arena.
 

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