Before the opening bell,
), the second largest U.S. mobile service provider, reported second
quarter 2012 adjusted earnings per share of 66 cents. The quarter's
earnings surpassed the Zacks Consensus Estimate by 3 cents and the
year-ago earnings by 6 cents.
The company once again delivered an outstanding performance with
double-digit earnings and operating income growth. The wireless
segment performed strongly with record low churn rates and
Revenue grew 0.3% year over year to $31.57 billion, but missed the
Zacks Consensus Estimate of $31.74 billion. Excluding the impact of
the sale of the Advertising Solutions unit, revenue increased 2%
year over year.
Operating income increased 10.6% year over year to $6.8 billion in
the second quarter. Operating margin expanded to a record 21.6%
from 19.6% in the year-ago quarter. This represents the highest
margins in four years.
revenue, including service and equipment, rose 4.8% year over year
to $16.4 billion primarily on the back of robust smartphone and
branded computing device sales as well as lower churn.
Wireless data revenue leaped 18.8% year over year to $6.4 billion,
driven by Internet access, multimedia and text messages.
AT&T added 1.3 million wireless customers in the reported
quarter, totaling 105.2 million. Strong additions were attributable
to the continued adoption of smartphones, including
) iPhones and
) Android based phones as well as increased sales of tablets and
connected devices such as automobile monitoring systems and
Retail post-paid additions were 320,000, retail-prepaid additions
were 92,000, connected device additions were 382,000 and reseller
additions were 472,000 in the reported quarter. AT&T added
496,000 branded computing subscribers (including tablets, aircards,
MiFi devices, tethering plans and other data-only devices), thus
bringing the total to 6.3 million. The branded computing subscriber
base grew 50% year over year.
The company sold 5.1 million smartphones in the reported quarter,
of which 3.7 million were iPhones and the rest were Android and
other smartphones. Notably, 22% of the iPhone customers were new to
Total churn improved to a record low of 1.18% from 1.43% in the
prior-year quarter and 1.47% in the prior quarter. Post-paid churn
improved to 0.97% from 1.15% in the prior-year quarter and 1.10% in
the prior quarter. This also represents the lowest level of churn
in the company's history.
Post-paid ARPU (average revenue per user) grew 1.7% year over year
to a record $64.93, driven by healthy data growth.
revenues dipped 0.8% year over year to $14.9 billion. Strong data
revenues driven by improving consumer and business strategic
services revenue trends partly compensated for lower voice and
Revenue from residential customers inched up 1.7% year over year
(maximum growth in more than four years) to $5.5 billion, driven by
AT&T U-verse services while business revenue slid 1.5% year
over year to $9.1 billion, reflecting continued weakness in voice
and legacy data products. Strategic business services such as
Ethernet, Virtual Private Networks, hosting, IP conferencing and
application services, spiked 13.5% year over year.
AT&T's total video subscribers, which include U-verse TV and
bundled satellite customers, touched 5.8 million at the end of the
second quarter. Total U-verse TV subscribers reached 4.1 million
with the net addition of 155,000 customers on continued high-speed
Internet attach rates.
Total consumer connections plunged to 40.2 million as of June 2012
from 42.5 million in the same month a year ago, due to a drop in
traditional voice access lines, partially offset by higher video
and broadband connections.
AT&T generated $9.7 billion cash from operations in the
reported quarter, up from $9.0 billion in the year-ago quarter. The
company's expenditure declined to $4.5 billion from $5.3 billion in
the year-ago quarter. Free cash flow was $5.1 billion compared to
$3.7 billion in the year-ago quarter.
The company repurchased 75.8 million of shares for $2.5 billion in
the reported quarter. With this, AT&T has 156.5 million shares
remaining in its buyback authorization, which started last quarter.
We believe that strong adoption of smartphones, expansion of LTE
networks and U-verse services, as well as the entry into cloud
computing and hotel WiFi businesses will boost the company's future
profitability. Further, a healthy balance sheet and strong
commitment to return value to shareholders in the form of dividends
and share repurchases make the stock more attractive for
However, persistent declines in traditional voice access lines,
aggressive pricing plans from its largest rivals
Verizon Communications Inc.
Sprint Nextel Corp.
), iPhone subsidies and intense competition from cable companies
and other alternative service providers are risks to the stock.
We are currently maintaining our long-term Neutral recommendation
on AT&T. The stock retains a Zacks #3 (Hold) Rank for the short
term (1-3 months).
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