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AT&T (T) Earnings Meet, Revenues Miss Estimates in Q4

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U.S telecom major, AT&T Inc.T reported mixed financial results in the fourth quarter of 2016. While the top line failed to meet the Zacks Consensus Estimate, the bottom line came in line with the same. However, the company stated that its streaming TV service - DirecTV Now - was instrumental in retaining customers.

On a GAAP basis, AT&T reported net income of $2,437 million or 39 cents per share in comparison with $4,006 million or 65 cents, in the year-ago quarter. Quarterly adjusted earnings per share were 66 cents, in line with the Zacks Consensus Estimate.

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Quarterly total revenue edged down 0.7% year over year to $41,841 million but fell below the Zacks Consensus Estimate of $42,113 million. Total operating expenses in the reported quarter were $37,593 million, up 8.7% year over year. Operating income was $4,248 million compared with $7,532 million in the year-ago quarter.

Cash Flow & Liquidity

In the fourth quarter of 2016, AT&T generated $10,142 million of cash from operations compared with $9,185 million in the year-ago quarter. Free cash flow in the reported quarter was $3,686 million compared with $3.092 million a year ago.

At the end of 2016, AT&T had $5,788 million of cash and cash equivalents and $123,513 million of total debt outstanding compared with $5,121 million and $118,515 million, respectively, at the end of 2015. The debt-to-capitalization ratio was 0.48 at the end of 2016 compared with 0.49 at the end of 2015.

AT&T Inc. Price, Consensus and EPS Surprise

AT&T Inc. Price, Consensus and EPS Surprise | AT&T Inc. Quote

Business Solutions Segment

Total revenue at the segment was $18,033 million, down 1.0% year over year. Of this, Wireless service revenues totaled $7,983 million, up 3.9% year over year. Fixed strategic services revenues reached $2,942 million, up 8.3%. Legacy voice and data services contributed $3,797 million, down 13.4%. Other service & equipment generated $963 million, down 1.0% while Wireless Equipment revenues totaled $2,348 million, down 4.3%. Operating income was $4,023 million, up 8.1%. Operating margin was 22.3% compared with 20.4% in the prior-year quarter.

As of Dec 31, 2016, the Business Solutions wireless subscriber base was 81,402,000, up 10.5% year over year. Within this, Postpaid wireless subscriber count was 50,688,000 and Connected Devices were 30,649,000. In the reported quarter, this segment gained a net of 250,000 Postpaid wireless customers and 1,263,000 Connected Devices. Business wireless postpaid churn rate was 1.11% compared with 1.10% in the year-ago quarter. Total wireline broadband connections were 1,426,000, down 4.4% year over year. IP-broadband was pegged at 977,000, while DSL-broadband was 449,000. Total wireline voice connections were 8,376,000, down 11.7% year over year.

Entertainment Group Segment

Total revenue at the segment grossed $13,206 million, up 1.6% year over year (post the DIRECTV acquisition). Of the total, Video entertainment revenues were $9,567 million, up 3.5%. High-Speed Internet revenues were $1,910 million, up 9.8%. Legacy voice and data services contributed $1,104 million, down 19.2%. Equipment and Other service generated $625 million, down 2.3%. Operating income was $1,362 million in the reported quarter compared with $1,445 million in the prior-year quarter. Operating margin was 10.3%, compared with 11.1% in the year-earlier quarter.

As of Dec 31, 2016, total video connections at this segment were 25,265,000, inched down 0.5%. Of the total, Satellite connections tallied 21,012,000 and U-verse connections were 4,253,000. In the reported quarter, AT&T lost 262,000 U-verse customers but gained 235,000 satellite TV customers. Total broadband connections at this segment were 14,179,000, down 0.7%. IP-broadband was pegged at 12,888,000, while DSL-broadband was 1,291,000. Total wireline voice connections were 11,278,000, down 9.8%.

Consumer Mobility Segment

Total revenue at the segment was $8,419 million, down 3.8% year over year. Of the total, Service revenues were $6,731 million, down 5.6%. Equipment revenues generated $1,688 million, up 4.3%. Operating income was $2,185 million, up 2.1%. Operating margin was 26% compared with 24.5% in the prior-year quarter.

As of Dec 31, 2016, the Consumer Mobility wireless subscriber base was 53,457,000, down 2.7%. Of this, Postpaid wireless subscribers totaled 27,095,000 and Prepaid wireless customers were 13,536,000. Reseller wireless subscriber base totaled 11,884,000 and Connected Devices count was 942,000. In the reported quarter, this segment gained a net of 270,000 postpaid wireless customers, 406,000 prepaid customers and 5,000 connected devices but lost a net of 673,000 resellers. Consumer Mobility postpaid churn rate was 1.25% compared with 1.31% in the year-ago quarter. Total churn rate for the segment was 2.43%, up from 1.97% in the year-ago quarter.

International Segment

Total revenue at the segment was $1,909 million, up 3.2% year over year. Within the total, Video entertainment revenues were $1,261 million, up 4.6%. Wireless service revenues were $477 million, down 3.4%. Wireless Equipment revenues were $171 million, up 14.8%. Operating loss was $268 million while operating margin was a negative 14.0%.

As of Dec 31, 2016, the International wireless subscriber base was 11,973,000, up 37.9% year over year. In the reported quarter, this segment gained a net of 1,275,000 wireless customers. Total churn rate was 6.94% compared with 5.67% in the year-ago quarter. The International video subscriber base touched 12,455,000. However, the company lost 21,000 International video customers in the reported quarter.

2017 Outlook

AT&T has projected that its consolidated revenues will grow in low-single digit in 2017. Adjusted EPS growth will be in the mid-single digit range. Adjusted operating margin will expand in 2017. Full year capital expenditures and free cash flow will be approximately $22 billion and $18 billion, respectively.

Recent Developments

In sync with the ongoing consolidation trend between the telecom and media sectors, AT&T has agreed to acquire media giant Time Warner Inc. TWX in an $85.4 billion cash-and-stock deal. If the proposed merger finally goes through, the combined entity will become a major player in the consolidated telecom-media space.

In the telecom-media space, cable TV giant Comcast Corp. CMCSA became a media mogul after acquiring NBC Universal in 2011. The company is set to enter the wireless field in mid-2017. Verizon Communications Inc. VZ took over AOL to target the lucrative online advertising market and its impending acquisition of Yahoo Inc. may provide the company access to world-class online content. Therefore, we believe AT&T's decision to acquire Time Warner will position it well to remain competitive in the changed market condition.

AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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