The U.S telecom operator, AT&T, Inc. (T), reported mixed financial numbers in the fourth quarter of 2014. The company’s earnings came in line with the Zacks Consensus Estimate whereas revenues missed the same. Intensified pricing competition, new device financing plans and other promotional strategies weighed on earnings during the quarter.
AT&T’s adjusted earnings per share moved up 3.8% year over year to 55 cents, in line with the Zacks Consensus Estimate. However, the company reported net loss of $3.9 billion or loss per share of 77 cents in comparison with net income of $7 billion or $1.31 in the year-ago quarter. The company’s fourth-quarter net loss can be attributed to increased operating expenses.
Quarterly total revenue increased 3.8% year over year to $34,439 million but lagged the Zacks Consensus Estimate of $34,502 million.
Total operating expenses in the reported quarter was $39,989 million, up 91.1% year over year. Operating loss stood at $5,550 million in comparison with operating income of $12,238 million in the year-ago quarter.
Cash Flow & Liquidity
In 2014, AT&T generated $31,338 million of cash from operations compared with $34,796 million in 2013. Free cash flow in the year was $9,905 million compared with $13,568 million in the prior year.
At the end of the fourth quarter of 2014, AT&T had $8,603 million of cash and cash equivalents and $76,011 million of long-term debt compared with $3,339 million of cash and cash equivalents and $69,290 million of long-term debt at the end of 2013. Debt-to-capitalization ratio increased to 0.74 in the fourth quarter from 0.43 in the year-ago quarter.
Wireless Segment
Total revenue at the segment stood at $19,859 million, up 7.7% year over year. Service revenues were down 3.7% to $15,074 million. Equipment revenues were $4,785 million, up 72.3%. Operating expenses increased 14.8% to $16,629 million. However, operating income dropped 18.1% to $3,230 million. Quarterly operating margin came in at 16.3% against 21.4% in the year-ago quarter.
At the end of fourth-quarter 2014, AT&T had 120.6 million wireless subscribers and connections, up 9.2% year over year. Out of the total, the postpaid subscriber count was 75.931 million, up 4.5%. Prepaid subscribers totaled 10.986 million, up a whopping 48.8%. Resellers were 13.855 million, down 1.2% and Connected Devices were 19.782 million, up 21.1%. This year-over-year rises can be attributed to continued adoption of smartphones, which include Apple Inc.’s (AAPL) iPhones and Google Inc.’s. (GOOG) Android-based phones.
In the final quarter of 2014, the company added 0.854 million postpaid customers (up an astounding 50.9% year over year). However, the company’s prepaid customer loss widened to 0.18 million from 0.032 million in the prior-year quarter. The company also lost 0.065 million resellers in the reported quarter.
Quarterly postpaid churn rate stood at 1.22% compared with 1.11% in the year-ago quarter whereas total churn rate was 1.59% against 1.43% in the year-earlier quarter. Phone-only Postpaid ARPU (average revenue per user) decreased 10.7% year over year and Phone-only Postpaid ARPU with AT&T Next monthly billings decreased 4.1% year over year.
Wireline Segment
Total revenue at the segment was $14,572 million, down 1% year over year. Also, Service revenues were down 1.3% to $14,240 million. Equipment revenues grossed $332 million, up 17.7%. Operating expenses increased 1.2% to $13,107 million. Meanwhile, the operating income increased 0.8% to $1,465 million. Quarterly operating margin stood at 10.1% against 9.9% in the year-ago quarter.
At the end of fourth-quarter 2014, AT&T had 24.778 million voice connections, down 13% year over year. In the reported quarter, the company lost 1.442 million voice connections, down 78.7%. At the end of the preceding quarter, AT&T had 16.028 million high-speed broadband connections, down 2.4% year over year. The company also lost 0.458 million broadband connections compared with a loss of 0.002 million connections in the prior-year quarter. Similarly, at the fourth-quarter end, AT&T had 5.943 million video connections, up 8.8%. On the other hand, the company lost 0.124 million video connections in the said quarter.
Guidance
For fiscal 2015, AT&T expects adjusted earnings per share to grow in the range of low single digit. Capital expenditures are expected at around $18 billion.
Rank
AT&T currently has a Zacks Rank #3 (Hold). A better-ranked stock in this sector is Vonage Holdings Corporation (VG) with a Zacks Rank 1# (Strong Buy).
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