) is expected to incur a charge of $10 billion in the fourth
quarter 2012, as a result of steeper pension issues. Further,
hefty smartphone subsidies along with the after effects of super
storm Sandy will also pull down the profit level.
The company stated that the retirement fund obligation is due to
an actuarial loss of $12 billion. This will be partially negated
by $1.9 billion coming from asset sale.
Another factor impacting the quarter's results is the heavy
subsidy that AT&T pays for each smartphone sale. As reported
earlier, the company has set a new record with the sale of 10
million smartphones in the last quarter of 2012. Hence, the
company is currently burdened with a weighty subsidy figure that
will likely suppress the wireless profit margins.
Wireless carriers like AT&T have to shell out heavy subsidies
to handset manufactures in order to offer mobile phones to
customers at a discount under two-year contract plans. The
company targets to sell around 25 million smartphones in 2013.
Apart from these operational hurdles, AT&T's performance
during the quarter was also ransacked by natural calamities,
including Hurricane Sandy. This whirlwind that passed over
America in late October damaged several cellphone towers, causing
service failures across many territories. The company expects its
operating profit to go down by nearly $175 million owing to this
These aspects plus the unstable economic conditions of the nation
and concerns over the securities markets in 2013 have compelled
the second largest provider of wireless services in North America
to lower its expectation for long-term rate of return.
San Antonio, Texas based AT&T will release its full
fourth-quarter 2012 financial results on January 24, 2013 after
the close of trading. The Zacks Consensus Estimates for the
fourth quarter and 2012 earnings currently stand at 48 cents per
share and $2.37 per share, respectively. The estimates reflect a
respective year-over-year growth of 13.1% and 7.8% for the fourth
quarter and 2012.
Last week, AT&T's prime rival
Verizon Communications Inc.
) stated that it will witness charges as high as $10 billion.
This involves post retirement benefit liabilities of $7 billion
plus expenses related to other items including hurricane Sandy.
We maintain our long-term Neutral recommendation on AT&T,
supported by a Zacks Rank #3 (Hold).
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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