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AT&T Up on Stellar Q3 Earnings, Raised 2015 Outlook

U.S telecom bellwether, AT&T Inc.T reported mixed financial results in the third quarter of 2015. The company's net earnings surpassed the Zacks Consensus Estimate while revenues fell short of the same. AT&T's better-than-expected earnings were driven by 2.5 million domestic wireless subscriber additions. Following the result, the company's shares gained 1.9% yesterday in the after-hour trading session.

AT&T's adjusted earnings per share moved up 14% year over year to 74 cents, beating the Zacks Consensus Estimate of 68 cents. On a GAAP basis, the company reported net income of $2,994 million or earnings per share of 50 cents in comparison with net income of $3,130 million or 60 cents in the year-ago quarter.

AT&T Inc. - Earnings Surprise | FindTheBest

Quarterly total revenue increased 18.6% year over year to $39,091 million, but lagged the Zacks Consensus Estimate of $40,992 million. Segment Wise, Service revenues were $35,625 million, up 19.6% year over year. Equipment revenues grossed $3,466 million, up 9.4% year over year.

Total operating expenses in the reported quarter were $33,168 million, up 21.3% year over year. Meanwhile, operating income stood at $5,923 million compared with $5,607 million in the year-ago quarter.

Cash Flow & Liquidity

In the first nine months of 2015, AT&T generated $26,695 million of cash from operations compared with $25,593 million in the first nine months of 2014. Free cash flow in the nine-month period was $13,339 million compared with $8,764 million in the year-ago period.

At the end of the third quarter of 2015, AT&T had $6,202 million of cash and cash equivalents and $126,930 million of total debt outstanding compared with $8,603 million of cash and cash equivalents and $76,011 million of total debt at the end of 2014. Debt-to-capitalization ratio was 0.49 at the end of the third quarter against 0.46 at the end of 2014.

Outlook

For full year 2015, AT&T now expects earnings per share in the range of $2.68-$2.74, up from the prior guided $2.62-$2.68. Full year free cash flow estimate has now been revised to $15 billion as against the previous estimate of $12 billion.

Business Solutions Segment

Total revenue at the segment was $17,692 million, up 1.2% year over year. Of this, Wireless service revenues were $7,732 million, up 2.5% year over year. Fixed strategic services revenues were $2,763 million, up 12.6%. Legacy voice and data services contributed $4,499 million, down 8.7%. Other service generated $885 million, down 9.4% while Wireless Equipment revenues totaled $1,813 million, up 14.3%. Operating income was $4,297 million, up 11.3%. Operating margin was 24.3% compared with 22.1% in the prior-year quarter.

As of Sep 30, 2015, Business Solutions wireless subscriber base was 71,561,000, up 14.4%. Within this, Postpaid wireless subscribers were 47,414,000, Reseller wireless subscribers were 83,000 and Connected Devices were 24,064,000. In the reported quarter, this segment gained a net 265,000 postpaid wireless customers, 8,000 resellers and 1,602,000 Connected Devices. Business wireless postpaid churn rate was 1.05% compared with 0.84% in the year-ago quarter.

Entertainment and Internet Services Segment

Total revenue at the segment was $10,858 million, up a whopping 95.5% year over year. Within the total, Video entertainment revenues were $7,162 million, up a whopping 316.6%. High-Speed Internet revenues were $1,685 million, up 19.2%. Legacy voice and data services contributed $1,419 million, down 22.6%. Equipment and Other service generated $592 million, up 1%. Operating income was $1,019 million against an operating loss of $337 million in the prior-year quarter. Operating margin was 9.4% compared with a negative 6.1% in the prior-year quarter.

As of Sep 30, 2015, total video connections of this segment were 25,424,000. Within this, Satellite connections were 19,570,000 and U-verse connections were 5,854,000. In the reported quarter, AT&T lost 92,000 U-verse customers but gained 26,000 satellite customers. Total broadband connections of this segment were 14,322,000, down 1%. Total wireline voice connections were 12,891,000, down 10.4%.

Consumer Mobility Segment

Total revenue at the segment was $8,784 million, down 4.6% year over year. Within the total, Postpaid wireless service revenues were $5,527 million, down 9%. Prepaid wireless service revenues were $1,198 million, up 3%. Other service generated $638 million, down 1.2%. Equipment revenues were $1,421 million, up 7%. Operating income was $2,743 million, up 8.5%. Operating margin was 31.2% compared with 27.4% in the prior-year quarter.

As of Sep 30, 2015, Consumer Mobility wireless subscriber base was 54,845,000, down 2.2%. Within this, Postpaid wireless subscribers were 29,257,000, Prepaid wireless customers were 10,988,000. Reseller wireless subscribers were 13,647,000 and Connected Devices were 953,000. In the reported quarter, this segment gained a net 23,000 postpaid wireless customers, 466,000 wireless prepaid customers and 149,000 resellers. Consumer Mobility postpaid churn rate was 1.33% compared with 1.20% in the year-ago quarter.

International Segment

Total revenue at the segment was $1,526 million. Within the total, Video entertainment revenues were $945 million. Wireless service revenues were $494 million. Wireless Equipment revenues were $87 million. Operating loss was $87 million and operating margin was a negative 5.4%.

As of Sep 30, 2015, International wireless subscriber base was 8,091,000. In the reported quarter, this segment lost a net 231,000 wireless customers. Total churn rate was 5.6%. International video subscriber base was 12,544,000. The company lost 226,000 International video customers in the reported quarter.

AT&T currently retains a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in this industry include T-Mobile US Inc. TMUS , United States Cellular Corp. USM and CenturyLink Inc. CTL . All the three stocks currently carry a Zacks Rank #2 (Buy).

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AT&T INC (T): Free Stock Analysis Report

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US CELLULAR (USM): Free Stock Analysis Report

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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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