AT&T Inc. (T)

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AT&T Inc. (T)

Q3 2012 Earnings Call

October 24, 2012 9:00 AM ET

Executives

Susan Johnson – Senior Vice President, Customer Information Services

John Stephens – CFO

Ralph de la Vega – President and CEO, Mobility

Analysts

Simon Flannery – Morgan Stanley

John Hodulik – UBS

Phil Cusick – JP Morgan

Mike McCormack – Nomura Securities

Michael Rollins – Citi Investment Research

Tim Horan – Oppenheimer

Jason Armstrong – Goldman Sachs

David Barden – Bank of America

Brett Feldman – Deutsche Bank

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the AT&T Third Quarter 2012 Earnings Release. (Operator Instructions) As a reminder, today’s call is being recorded.

With that being said, I’ll turn the conference now to Susan Johnson. Please go ahead.

Susan Johnson

Thank you, John. Good morning, everyone, and welcome to our third quarter conference call. It’s great to have you with us this morning. I’m Susan Johnson, Head of Investor Relations for AT&T. Joining me on the call today is John Stephens, AT&T’s Chief Financial Officer, and Ralph de la Vega, AT&T’s President and CEO for Mobility. John will cover our consolidated and Wireline results, and Ralph will give us an update on our wireless business. Then we’ll follow with Qs & As.

Let me remind you our materials are available on the Investor relations page of the AT&T website that’s www.att.com/investor.relations.

I always need to cover our Safe Harbor statement, which is on Slide 3. This presentation and comments may contain forward-looking statements. They’re subject to risks. Results may differ materially. Details are in our SEC filings and on AT&T’s website.

Before I turn the call over to John, let me quickly cover our consolidated financial summary, which is on Slide 4. Reported EPS for the quarter was $0.63, $0.02 higher than last year’s third quarter, and when you exclude our divested Ad Solutions unit we are up $0.03 or 5% for the quarter and 8% year to date. Revenue growth continues to be solid. When you exclude the divested Advertising Solutions business, consolidated revenues were up 2.6% year-over-year thanks to strong revenue growth in Wireless, continued gains in U-verse Services and growth in strategic business services.

Consolidated margins were down slightly year-over-year due to higher smartphone sales. And cash flow was very impressive. In fact, it was at record levels. Cash flow from operating activities for the quarter totaled $11.5 billion. And free cash flow was $6.5 billion. We aggressively bought back shares as part of our repurchase program. Through the end of last week we have bought back more than 271 million shares for $9.4 billion.

With that overview, I’ll now turn the call over to AT&T’s Chief Financial Officer, John Stephens. John?

John Stephens

Thank you, Susan, and good morning, everyone, and thank you for being with us today. Before we get to the detailed results, let’s start with a quick overview. Highlights are on Slide 5.

During the quarter, we continued doing an excellent job of growing the business, transforming our revenue streams, and improving our cost structure. We had solid revenue growth, consolidated Wireless and Consumer Wireline. We grew earnings, and we had our best free cash flow ever, both in the quarter and year to date. We also took a significant step to improving our funding status for our pension plans.

Last week we filed an application with the Department of Labor that seeks authorization to voluntarily contribute a $9.5 billion preferred equity interest in AT&T Mobility into the Pension Plan Trust. We see this is a win-win situation for investors, our employees, and our retirees. This will increase funding well above the required level by law and further assure the long-term health of our pension fund. We will collaborate with the Department of Labor to provide any details it might need, and work to obtain approval before the end of 2013.

As we look at our operations, Wireless had another strong quarter. Ralph will give you more details in a moment, but the headline was strong revenue growth led by the Mobile Internet, including our strongest post-pain ARPU growth in six quarters. And U-verse continues to be a great success story for us. We continue to add subscribers at a rapid clip. We now have 7.4 million total U-verse subscribers, both TV and high-speed Internet. This drove our ninth consecutive quarter of consumer Wireline revenue growth and our strongest growth in more than four years.

So the team is executing at a high level. Financial results are solid. We’ve taken steps to improve our capital structure, and all this puts us in a great position to continue delivering strong results as we finish the year.

Let’s now take a look at detailed results starting with consolidated revenues on Slide 6. As you know, the sale of our Advertising Solutions business was completed earlier this year. If you exclude Ad Solutions, consolidated revenues were up $0.75 billion, or 2.6%. The drivers are Mobile Internet, strong performance with U-verse and continued strength in strategic business services. These growth drivers now account for 81% of our revenues in the third quarter. That’s up from 78% a year ago and 75% two years ago. This is up about $1.5 billion, or more than 6% year-over-year. We expect this mix shift to continue as we sharpen our focus on our growth drivers and continue to successfully transform our business.

Read the rest of this transcript for free on seekingalpha.com