AT&T Inc. (T)

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AT&T Inc. (T)

Q2 2009 Earnings Call

July 23, 2009 10:00 am ET

Executives

Brooks McCorcle - Senior Vice President of Investor Relations

Richard G. Lindner - Chief Financial Officer, Senior Executive Vice President

Analysts

Simon Flannery - Morgan Stanley

John Hodulik - UBS

Christopher Larsen - Piper Jaffray

Jason Armstrong - Goldman Sachs

David Barden - Banc of America

Phil Cusick - Macquarie Research Equities

Mike Mccormack - J.P. Morgan

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the AT&T second quarter earnings release 2009 conference call. (Operator Instructions) I will now turn the call over to Ms. Brooks McCorcle. Ms. McCorcle, you may begin.

Brooks McCorcle

Thank you, Sandra. Good morning, everyone. Welcome to our second quarter conference call. It’s great to have you with us this morning. This is Brooks McCorcle, head of investor relations for AT&T, and joining me on the call this morning is Rick Lindner, AT&T's Chief Financial Officer.

In a minute, Rick will cover our results and Q&A will follow but before we get underway, let me remind you that our release, our investor briefing, supplementary information, and the presentation slides that accompany this call are all available on the investor relations page of the AT&T website -- that’s www.att.com/investor.relations.

I also need to cover you on our Safe Harbor statement, which is on slide 2 and that says that information set forth in this presentation contains financial estimates and other forward-looking statements that are subject to risks and uncertainties and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this presentation based on new information or otherwise.

This presentation may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are also available on our website at www.att.com/investor.relations.

Before I turn the call over to Rick, let me start with a quick financial summary, which is on slide 3. EPS for the quarter was $0.54, and that includes $0.05 of pressure from incremental non-cash, pension, and retiree benefit costs, consistent with first quarter results. EPS also reflects margin and expense pressure from our iPhone 3GS launch, as well as a lower tax rate.

Consolidated revenues were stable, down fractionally year over year and up half a percentage point sequentially, with economic pressures offset by strength in wireless, AT&T U-verse, broadband, and strategic business services.

Our consolidated operating income margin was 17.9% for the quarter and 18.3% for the first half of the year. And this was another strong free cash flow quarter, $8.4 billion for the first half versus $3.9 billion in the same period a year ago, reflecting solid cost efforts, lower capital expenditures, and also the timing of cash tax payments.

With that as a quick overview, I’ll now turn the call over to AT&T's Chief Financial Officer, Rick Lindner. Rick.

Richard G. Lindner

Thanks, Brooks. Good morning, everyone. Before we get into the details, I would like to take just a couple of minutes and talk about what we are seeing in the environment. The economic trends and the impacts on the business are generally consistent with what we saw in the first quarter. New products on our wireless and U-verse platforms continue to do very well and we are pleased to report sequential stability in wireline consumer revenues. But that said, employment and business formation continue to lag and as you would anticipate, the impacts are most evident in our business results.

In this environment, we have managed costs aggressively and that’s reflected in solid margins and strong free cash flow. At the same time, we know that the economy will return to growth, so our objective is not just to manage during this down turn but to prepare the business for the opportunities beyond. So we continue to invest and grow in key areas, like wireless broadband, advanced business services, and our AT&T U-verse platform.

Our goal is to make sure that when the economy turns, we are strong financially and stronger operationally, with solid momentum in the areas that will lead future growth.

That’s the game plan for this year and the game plan behind our achievements in the second quarter, which are highlighted on slide four.

We continue to build excellent momentum in wireless. We had a terrific post-pay quarter with net adds and churn at best ever levels. We had a strong iPhone quarter with 2.4 million activations and including the iPhone, the number of 3G integrated devices on our network increased by $3.5 million.

All of these things help drive robust wireless data growth and ARPU improvements. At the same time, U-verse continues to ramp nicely, which helped drive wireline IP data revenue growth.

So to sum up the quarter, we delivered solid earnings per share, operating margins, and free cash flow with some obvious economic impacts, particularly in business, but with good execution on the cost side and positive momentum in our growth products.

Now let’s turn and look at consolidated revenues, which are on slide five. Revenues totaled $30.7 billion. That’s down slightly year over year and up half a percentage point sequentially. This reflects continued growth in wireless and in wireline data. Wireless service revenues were up more than $1 billion, or 9.4%. Wireline data revenues were up 5.2%, right in line with our growth rate in this category over the past few quarters. And wireline IP data revenues were up 17%, also consistent with recent trends. These drivers offset economic impacts in wireline voice products.

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