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AT&T's Fairly Smart Quarter
AT&T (NYSE:T) turned in a respectable quarter in its first full earnings period without exclusivity for iPhone service. Revenue was up slightly for the second quarter compared to last year's quarter, while diluted EPS was off from last year's quarter, but adjusted earnings came in flat. The market reacted positively to the surprisingly good results. (For more on earnings, check out Earnings: Quality Means Everything.)
Tutorial: Earnings Quality
A Victory by Holding Its Own
Despite the loss of its exclusive service hold for the iPhone, with rival Verizon Communications (NYSE:VZ) now joined in the battle, AT&T more than held its own. Predictions of AT&T's demise proved more than premature, they look simply wrong. AT&T activated 3.6 million iPhones in the quarter, compared to 3.2 million last year's quarter. AT&T sold 5.6 million smartphones, a 43% year-over-year increase.
AT&T added 331,000 contract users, which was made possible by charging only $49 for the older 3GS model iPhone to retain customers. The strategic move was appreciated by analysts, who expected on average a 96,000 gain. AT&T continues to seek regulatory approval for its $39 billion deal with Deutsche Telecom (OTC:DTEGY ) to buy T-Mobile USA, which is expected to improve AT&T's web connections as well as improve wireless service, particularly with regard to dropped calls. (To help you determine which stocks are winners, read How To Pick The Best Telecom Stocks.)
The Quarter's Results
Second quarter sales rose to $31.5 billion, up 2.2% from $30.8 billion. Net income climbed to $3.6 billion or 60 cents per diluted share, from $4 billion or 67 cents per diluted share in last year's second quarter. Excluding the gain on a significant item, the Telmex Internacional transaction, in last year's quarter, EPS would have been 60 cents, so this year's quarter's EPS equaled that figure. Operating income margin was 19.6% compared to 19.7% in the year ago quarter.
The company posted a net gain of 1.1 million in wireless subscribers, bringing its total to 98.6 million. This represents every customer category, as gains were driven by prepaid subscribers, tablets and smartphones. Nearly 70% of postpaid device sales were smartphones, and by the end of the quarter, of the 68.4 million postpaid subscribers, nearly 49.9% of these subscribers had smartphones, an increase from 35.8% a year earlier.
Total wireless revenue grew 9.5%. Wireless data revenue, which includes internet, messaging and applications, reached $5.4 billion, an increase of $1 billion or 23.4%. Wireless operating income margin fell to 27% from 28.9% in last year's same quarter, due to operating costs associated in part with smartphone and customer upgrades.
Financial Performance
On a six-month year-to-date basis, capital expenditures have risen from $8.2 billion to $9.5 billion, while cash from operations have grown from $15.8 billion to $16.8 billion, with free cash flow down slightly from $7.6 billion to $7.3 billion. The stock price has edged up as investors have realized AT&T is weathering the storm from Verizon iPhone competition so far.
The Bottom Line
AT&T is a major dividend payer, a bulwark safety and income stock, with its current yield of 5.7%, as are many other global telecoms such as rival Verizon's 5.3% yield, or Vodafone's (NYSE:VOD) 7.3% payout, and France Telecom's (NYSE:FTE) 4.3% yield. Is AT&T potentially more than just a dividend stock? While the iPhone battle with Verizon is no doubt just heating up, AT&T has shown it can grow revenue and has the potential for growing its income as it competes surprisingly well in the various spaces of the voice and data wars. (To help you breakdown what earnings mean, see Everything Investors Need To Know About Earnings.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Tutorial: Earnings Quality
A Victory by Holding Its Own
Despite the loss of its exclusive service hold for the iPhone, with rival Verizon Communications (NYSE:VZ) now joined in the battle, AT&T more than held its own. Predictions of AT&T's demise proved more than premature, they look simply wrong. AT&T activated 3.6 million iPhones in the quarter, compared to 3.2 million last year's quarter. AT&T sold 5.6 million smartphones, a 43% year-over-year increase.
AT&T added 331,000 contract users, which was made possible by charging only $49 for the older 3GS model iPhone to retain customers. The strategic move was appreciated by analysts, who expected on average a 96,000 gain. AT&T continues to seek regulatory approval for its $39 billion deal with Deutsche Telecom (OTC:DTEGY ) to buy T-Mobile USA, which is expected to improve AT&T's web connections as well as improve wireless service, particularly with regard to dropped calls. (To help you determine which stocks are winners, read How To Pick The Best Telecom Stocks.)
The Quarter's Results
Second quarter sales rose to $31.5 billion, up 2.2% from $30.8 billion. Net income climbed to $3.6 billion or 60 cents per diluted share, from $4 billion or 67 cents per diluted share in last year's second quarter. Excluding the gain on a significant item, the Telmex Internacional transaction, in last year's quarter, EPS would have been 60 cents, so this year's quarter's EPS equaled that figure. Operating income margin was 19.6% compared to 19.7% in the year ago quarter.
Total wireless revenue grew 9.5%. Wireless data revenue, which includes internet, messaging and applications, reached $5.4 billion, an increase of $1 billion or 23.4%. Wireless operating income margin fell to 27% from 28.9% in last year's same quarter, due to operating costs associated in part with smartphone and customer upgrades.
Financial Performance
On a six-month year-to-date basis, capital expenditures have risen from $8.2 billion to $9.5 billion, while cash from operations have grown from $15.8 billion to $16.8 billion, with free cash flow down slightly from $7.6 billion to $7.3 billion. The stock price has edged up as investors have realized AT&T is weathering the storm from Verizon iPhone competition so far.
The Bottom Line
AT&T is a major dividend payer, a bulwark safety and income stock, with its current yield of 5.7%, as are many other global telecoms such as rival Verizon's 5.3% yield, or Vodafone's (NYSE:VOD) 7.3% payout, and France Telecom's (NYSE:FTE) 4.3% yield. Is AT&T potentially more than just a dividend stock? While the iPhone battle with Verizon is no doubt just heating up, AT&T has shown it can grow revenue and has the potential for growing its income as it competes surprisingly well in the various spaces of the voice and data wars. (To help you breakdown what earnings mean, see Everything Investors Need To Know About Earnings.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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