U.S telecom bellwether, AT&T Inc. T reported mixed financial results in the third quarter of 2015. The company’s net earnings surpassed the Zacks Consensus Estimate while revenues fell short of the same. AT&T’s better-than-expected earnings were driven by 2.5 million domestic wireless subscriber additions. Following the result, the company’s shares gained 1.9% yesterday in the after-hour trading session.
AT&T’s adjusted earnings per share moved up 14% year over year to 74 cents, beating the Zacks Consensus Estimate of 68 cents. On a GAAP basis, the company reported net income of $2,994 million or earnings per share of 50 cents in comparison with net income of $3,130 million or 60 cents in the year-ago quarter.
Quarterly total revenue increased 18.6% year over year to $39,091 million, but lagged the Zacks Consensus Estimate of $40,992 million. Segment Wise, Service revenues were $35,625 million, up 19.6% year over year. Equipment revenues grossed $3,466 million, up 9.4% year over year.
Total operating expenses in the reported quarter were $33,168 million, up 21.3% year over year. Meanwhile, operating income stood at $5,923 million compared with $5,607 million in the year-ago quarter.
Cash Flow & Liquidity
In the first nine months of 2015, AT&T generated $26,695 million of cash from operations compared with $25,593 million in the first nine months of 2014. Free cash flow in the nine-month period was $13,339 million compared with $8,764 million in the year-ago period.
At the end of the third quarter of 2015, AT&T had $6,202 million of cash and cash equivalents and $126,930 million of total debt outstanding compared with $8,603 million of cash and cash equivalents and $76,011 million of total debt at the end of 2014. Debt-to-capitalization ratio was 0.49 at the end of the third quarter against 0.46 at the end of 2014.
Outlook
For full year 2015, AT&T now expects earnings per share in the range of $2.68-$2.74, up from the prior guided $2.62-$2.68. Full year free cash flow estimate has now been revised to $15 billion as against the previous estimate of $12 billion.
Business Solutions Segment
Total revenue at the segment was $17,692 million, up 1.2% year over year. Of this, Wireless service revenues were $7,732 million, up 2.5% year over year. Fixed strategic services revenues were $2,763 million, up 12.6%. Legacy voice and data services contributed $4,499 million, down 8.7%. Other service generated $885 million, down 9.4% while Wireless Equipment revenues totaled $1,813 million, up 14.3%. Operating income was $4,297 million, up 11.3%. Operating margin was 24.3% compared with 22.1% in the prior-year quarter.
As of Sep 30, 2015, Business Solutions wireless subscriber base was 71,561,000, up 14.4%. Within this, Postpaid wireless subscribers were 47,414,000, Reseller wireless subscribers were 83,000 and Connected Devices were 24,064,000. In the reported quarter, this segment gained a net 265,000 postpaid wireless customers, 8,000 resellers and 1,602,000 Connected Devices. Business wireless postpaid churn rate was 1.05% compared with 0.84% in the year-ago quarter.
Entertainment and Internet Services Segment
Total revenue at the segment was $10,858 million, up a whopping 95.5% year over year. Within the total, Video entertainment revenues were $7,162 million, up a whopping 316.6%. High-Speed Internet revenues were $1,685 million, up 19.2%. Legacy voice and data services contributed $1,419 million, down 22.6%. Equipment and Other service generated $592 million, up 1%. Operating income was $1,019 million against an operating loss of $337 million in the prior-year quarter. Operating margin was 9.4% compared with a negative 6.1% in the prior-year quarter.
As of Sep 30, 2015, total video connections of this segment were 25,424,000. Within this, Satellite connections were 19,570,000 and U-verse connections were 5,854,000. In the reported quarter, AT&T lost 92,000 U-verse customers but gained 26,000 satellite customers. Total broadband connections of this segment were 14,322,000, down 1%. Total wireline voice connections were 12,891,000, down 10.4%.
Consumer Mobility Segment
Total revenue at the segment was $8,784 million, down 4.6% year over year. Within the total, Postpaid wireless service revenues were $5,527 million, down 9%. Prepaid wireless service revenues were $1,198 million, up 3%. Other service generated $638 million, down 1.2%. Equipment revenues were $1,421 million, up 7%. Operating income was $2,743 million, up 8.5%. Operating margin was 31.2% compared with 27.4% in the prior-year quarter.
As of Sep 30, 2015, Consumer Mobility wireless subscriber base was 54,845,000, down 2.2%. Within this, Postpaid wireless subscribers were 29,257,000, Prepaid wireless customers were 10,988,000. Reseller wireless subscribers were 13,647,000 and Connected Devices were 953,000. In the reported quarter, this segment gained a net 23,000 postpaid wireless customers, 466,000 wireless prepaid customers and 149,000 resellers. Consumer Mobility postpaid churn rate was 1.33% compared with 1.20% in the year-ago quarter.
International Segment
Total revenue at the segment was $1,526 million. Within the total, Video entertainment revenues were $945 million. Wireless service revenues were $494 million. Wireless Equipment revenues were $87 million. Operating loss was $87 million and operating margin was a negative 5.4%.
As of Sep 30, 2015, International wireless subscriber base was 8,091,000. In the reported quarter, this segment lost a net 231,000 wireless customers. Total churn rate was 5.6%. International video subscriber base was 12,544,000. The company lost 226,000 International video customers in the reported quarter.
AT&T currently retains a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in this industry include T-Mobile US Inc. TMUS, United States Cellular Corp. USM and CenturyLink Inc. CTL. All the three stocks currently carry a Zacks Rank #2 (Buy).
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