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It has been about a month since the last earnings report for AT&T Inc. T. Shares have lost about 8.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is T due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
AT&T Misses on Q1 Earnings & Revenues, Reiterates View
AT&T reported mixed first-quarter 2018 results, with the top and the bottom lines missing the respective Zacks Consensus Estimate despite solid prepaid phone gains, record low first-quarter postpaid phone churn and continued DIRECTV NOW subscriber growth.
On a GAAP basis, AT&T reported net income of $4,662 million or 75 cents per share compared with $3,469 million or 56 cents per share in the year-ago quarter. Excluding non-recurring items, adjusted earnings were 85 cents per share compared with 74 cents in the year-earlier quarter. The figure, however, missed the Zacks Consensus Estimate of 87 cents.
Consolidated revenues decreased 3.4% year over year to $38,038 million, primarily due to decline in legacy services, adverse impact of the transition of video from linear to over-the-top services and divesture of low-margin businesses. Revenues also missed the Zacks Consensus Estimate of $39,452 million.
Of the total, Services revenues were $33,646 million, down 7.7% year over year. Equipment revenues were $4,392 million, up 51%.
Business Solutions: Total revenues were $9,185 million, down 5.2% year over year due to adoption of new accounting standards that deal with revenue recognition. Of this, Wireless service revenues totaled $1,791 million, down 10.6% year over year owing to the impact of revenue recognition and customer shifts to unlimited data plans. Wireless Equipment revenues totaled $578 million compared with $288 million in the prior-year quarter. Strategic services revenues were $3,138 million, up 5.5% due to solid performance in VPNs, Ethernet, cloud, hosting, IP conferencing, voice over IP, dedicated internet, IP broadband and security services. Legacy voice and data services contributed $2,839 million, declining 20% as customers moved to upgraded products. Other service & equipment generated $839 million, down 4.4%.
Operating income was $2,085 million compared with $2,187 million in the year-ago quarter largely due to decline in legacy services, higher FirstNet expenses and higher wireless sales costs. Operating margin was 22.7% compared with 22.6% in the prior-year quarter. EBITDA was $3,547 million compared with $3,652 million in the year-ago quarter, for respective margins of 38.6% and 37.7%.
Entertainment Group: Total revenues grossed $11,577 million, down 8.1% year over year as performance of all businesses was relatively poor. Video entertainment revenues were $8,359 million, down 7.3% due to a decline in linear TV subscribers. High-Speed Internet revenues were $1,878 million, down 3.2% led by legacy DSL decline, simplified pricing and bundle discount. Legacy voice and data services contributed $819 million, down 20.6%. Equipment and Other service generated $521 million, down 14.4%.
Operating income was $1,326 million in the reported quarter compared with $1,576 million in the prior-year quarter, leading to respective margins of 11.5% and 12.5%. EBITDA was $2,638 million compared with $2,996 million in the year-ago quarter for respective margins of 22.8% and 23.8%. The year-over-year decrease in margins were primarily due to TV content-cost pressure, decline in legacy services, fewer linear subscribers and new video platform expenses
Consumer Mobility: Total revenues were $14,986 million, up 1.2% year over year, driven by higher postpaid equipment sales (up 44.1% to $3,374 million), partially offset by lower postpaid service revenues (down 6.8% to $11,612 million).
Operating income was $4,655 million, up 2.8% year over year for margins of 31.1% compared with 30.6% in the prior-year quarter. EBITDA was $6,462 million compared with $6,246 million in the year-ago quarter for respective margins of 43.1% and 42.2%. The year-over-year improvement in margins was largely due to higher volume and cost efficiencies.
International: Total revenues were $2,025 million, up 5% year over year, owing to solid performance in Mexico. Video entertainment revenues were $1,354 million, up 1% while Wireless service revenues were $404 million, down 14.9% due to a shutdown of a wholesale business in fourth-quarter 2017. Wireless equipment revenues were $267 million, up 136.3% driven by higher market penetration.
Operating loss in this segment was $111 million compared with a loss of $120 million in the year-ago quarter due to continued investment in customer acquisition and higher depreciation. EBITDA was $221 million compared with $170 million in the year-ago quarter for respective margins of 10.9% and 8.8%, largely driven by continued margin expansion in Latin America.
Cash Flow & Liquidity
AT&T generated $8,947 million of cash from operations in first-quarter 2018 compared with $8,965 million in the prior-year quarter. Free cash flow in the reported quarter was $2,829 million compared with $2,950 million in the year-ago quarter.
At quarter end, AT&T had $48,872 million of cash and cash equivalents with long-term debt of $133,724 million.
AT&T reiterated its earlier guidance for 2018. The company continues to expect earnings of $3.50 per share (on an adjusted basis) with free cash flow of about $21 billion. Capital expenditures are expected at around $25 billion. The company expects to gain $23 billion of net reimbursements from the FirstNet Project, which includes $1 billion of incremental tax reform investments.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There has been one revision higher for the current quarter compared to eight lower.
AT&T Inc. Price and Consensus
AT&T Inc. Price and Consensus | AT&T Inc. Quote
At this time, T has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, T has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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