AT&T Profit Tops Estimates, Revenue Falls Short

AT&T Profit Tops Estimates, Revenue Falls Short

Published: Tuesday, 24 Jul 2012
By: Reuters
AT&T reported quarterly profit that beat Wall Street estimates Tuesday as the No. 2 U.S wireless phone provider managed to cut more costs than expected in its wireless business.
Shares in AT&T rose slightly on Tuesday after it posted a wireless service margin of 45 percent, based on earnings before interest, taxes, depreciation, and amortization . This was well ahead of the average expectation of 42.58 percent from four analysts.

"If you dig into the numbers, there are definitely some things to like in this release. The margins are the biggest thing," said Hudson Square Research analyst Todd Rethemeier.


Like its bigger rival Verizon Wireless, AT&T has been curtailing the frequency of smartphone upgrades for its customers in an effort to cut costs.


In particular, the operators pay hefty subsidies for each Apple [AAPL 605.146 1.316 (+0.22%) ] iPhone they sell so they can offer the devices at a discount to consumers who sign up for a two-year contract.

AT&T was also likely helped in the second quarter as customers may be putting off buying phones until the next iPhone launch, which is expected in the fourth quarter.

AT&T's profit rose to $3.90 billion, or 66 cents per share, from $3.59 billion, or 60 cents per share, a year earlier. The result beat Wall Street expectations of 63 cents per share, according to Thomson Reuters I/B/E/S.

The company added 320,000 contract customers in the second quarter, ahead of the average expectation of about 233,000 from six analysts contacted by Reuters. However, it was well behind the 888,000 net subscribers bigger rival Verizon Wireless added.
AT&T said it was helped by a record low 0.97 percent customer cancellation rate, known in the industry as churn, compared with 1.15 percent in the year-ago quarter.

Hudson Square's Rethemeier noted AT&T's profit margin of 32.3 percent for its traditional wireline business was above his 31.8 percent estimate.

The company also said it saw an increase in the number of customers who moved from its unlimited data service plans to its tiered plans, under which customers are charged based on how much data they download.

According to AT&T, about 27 million people, or two-thirds of its smartphone subscribers, are now on tiered plans, compared with 45 percent a year ago.

The results followed AT&T's announcement last week of a new pricing structure aimed at boosting revenue and encouraging customers to connect more devices, besides phones, to its network.

Revenue rose to $31.6 billion from $31.5 billion but fell a little short of analysts' expectations for $31.7 billion.

During the quarter, AT&T sold 53 percent of its telephone directory business to private-equity firm Cerberus Capital Management for $750 million in cash.

AT&T shares [T 35.43 0.05 (+0.14%) ] rose to $35.50 in trading before the market opened after closing at $35.38 in regular New York Stock Exchange trade. (Click here to get the latest quotes for AT&T.)

The stock had risen about 17 percent so far this year due to the company's high dividend yield and earnings and revenue stability amid an uncertain global economy and low U.S. Treasury interest rates.