Leading communications firm AT&T Inc. (T) reported first-quarter 2013 adjusted earnings per share of 64 cents, in-line with the Zacks Consensus Estimate. Comparing year over year, the results improved 8.5% from adjusted earnings of 59 cents.
The year-over-year growth was supported by strength in mobile data services, a well-performing broadband segment and efficient cost management.
Quarterly revenues decreased 1.5% from the prior-year quarter to $31.4 billion and missed the Zacks Consensus Estimate of $31.7 billion. Excluding the impact of Advertising Solutions unit sale, revenues increased 0.9% year over year.
Operating income decreased 2.6% year over year to $5.9 billion, while operating expenses were down 1.2% year over year at $25.4 billion.
Segment Results
Wireless revenues, including equipment sales, rose 3.4% year over year to $16.7 billion in the quarter, primarily on the higher number of smartphone sold and lower churn. Wireless data revenues leaped 21.0% year over year to approximately $5.1 billion, driven by Internet access, multimedia and text messages.
AT&T added 291,000 wireless customers in the reported quarter, totaling 107.2 million. Strong additions were attributable to the continued adoption of smartphones, including Apple Inc.’s (AAPL) iPhones and Google Inc’s (GOOG) Android-based phones. Increased sales of tablets also aided the growth.
Retail post-paid additions were 296,000 and connected device additions were 431,000. However, the company lost about 184,000 prepaid customers (due to a drop in GoPhone along with session-based tablets) and 252,000 reseller customers (on less or no account usage).
During the quarter, the company added 1.2 million post-paid smartphone users and sold 6.0 million smartphones that comprised 81% of post-paid device sales and 88% of post-paid phone sales. At quarter-end, nearly 72% of the post-paid phone users of AT&T used smartphones. Almost 60% post-paid smartphone subscribers have 4G-based handsets.
Total churn was 1.38% compared with 1.47% in the prior-year quarter. Post-paid ARPU (average revenue per user) grew marginally year over year to $65.01, driven by healthy data growth.
Wireline revenues dipped 1.8% year over year to $14.7 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 2.0% year over year to $5.5 billion, driven by robust AT&T U-verse services. Business revenues slid 3.4% year over year to $8.9 billion, reflecting the impact of a sluggish economy. Strategic business services such as Ethernet, Virtual Private Networks, hosting, IP conferencing and application services, increased 10.8% year over year.
AT&T's total U-verse subscribers, which include TV and high-speed Internet customers, touched 8.7 million at the end of the first quarter. Total U-verse TV subscribers reached 4.8 million with the net addition of 731,000 high-speed Internet users.
Financials
As of Mar 31, 2013, AT&T had $3.9 billion in cash and cash equivalents. The company had long-term debt (including current portion) of $74.1 billion, representing a debt-to-capitalization ratio of 45.6%.
AT&T generated $8.2 billion of cash from operations in the quarter, while capital expenditure totaled $4.3 billion. The company repurchased 168 million shares for $5.9 billion. Additionally, management approved another 300 million share buyback program.
Outlook
For 2013, AT&T expects to witness revenue growth aided by contributions from wireless services and wireline consumer business. Capital expenditure is expected to be around $21.0 billion. For 2014 and 2015, the company aims to spend around $20.0 billion each year.
Another Major Telecom Stock
The largest U.S. mobile service provider Verizon Communications Inc. (VZ) reported better-than-expected first quarter 2013 results on Apr 18. Earnings of 68 cents per share surpassed the Zacks Consensus Estimate of 66 cents and improved from the year-ago figure of 59 cents.
Our Take
AT&T currently holds a Zacks Rank #2 (Buy). We expect the launch of attractive handsets coupled with new data plan offerings to add more subscribers in the coming days. Strength in business services, the planned investment program and U-verse expansion are also expected to boost the company’s performance over the next few months.
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