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AT&T Inc. Posts Earnings Beat, But Slowing Wireless Segment Pulls Stock Price Down
By: Sam Quest
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AT&T Inc. (T) reported its performance results for the first quarter of its 2014 fiscal year (1QFY14) yesterday after market close. The company managed to post an earnings beat, even though revenues were in line with market expectations.

Investors, however, reacted with concern on reports of slowing growth in the company’s wireless segment, sending its share price down over 2% in after-hours trading.

Consolidated Results

AT&T is the largest telecom company in the US in terms of total subscribers for both wireless and wireline services.

The company’s revenues in the latest reported quarter were $32.47 billion, up 3.5% YoY – in line with consensus estimates. This was the best growth in overall revenues that the company has managed in over two years.

Earnings per share came in at $0.71, beating estimates by a penny, and were up nearly 11% from the same period last year. Cash flows from operations swelled to $8.8 billion, an increase of 7.3% YoY, after the company added more than two million additional connections for both wireless and wireline services.

Total operating expenses increased 3%, resulting in a decline of a little over 1% in net income, which totaled $3.6 billion for the quarter. Capital expenditures were increased by 34.5% over the first three months of the year, as the company continued to expand its network and 4G services in towns across America.

Segment Performance

Investors were mostly disappointed by the slowdown in the company’s wireless segment, pushing AT&T’s share price down in after-hours trading. The telecom industry is witnessing cutthroat competition these days, which has prompted underdog T-Mobile US Inc. (TMUS) to initiate a price war.

Wireless

Wireless revenues grew 7% according to the company’s filings, totaling $17.8 billion for the quarter. However, that growth was driven by an increase in equipment revenues, as service revenues for the segment grew only 2.2% in the quarter, compared to the 4%-plus growth witnessed in the same period last year. This is being attributed to the fact that increased competition is limiting the growth of the old brass in the US telecom space.

Wireless subscribers grew 8% to 116 million, led by an increase in prepaid subscribers and net additions from the company’s Leap Wireless acquisition. Organically, growth in the wireless segment was driven by a 16% increase in “connected device” users.

The total wireless ARPU (average revenue per user) declined 2% YoY from $46.89 to $45.98, while the total wireless churn rate was 1.4%. The postpaid churn rate rose slightly to 1.07%, compared to 1.04% in 1QFY13.

Wireline

Wireline revenues declined from $14.65 billion to $14.6 billion, led by a 22% decline in equipment revenues. Except for the company’s Consumer Markets sub-segment, the rest declined, with revenues from National Mass Markets dropping the most (a decline of 22% YoY).

Within Wireline, the Voice segment posted a 10.5% decline in revenues to $4.7 billion, while Data Services continued to expand, with revenues from the segment increasing 6.5% to $8.7 billion.

AT&T Business Solutions

The Wholesale and GEM (Government, Education and Medical) Solutions segments saw revenues decline by 4.5%. Overall, the Business Solutions segment was down 2.7% YoY to $8.7 billion.

Guidance

AT&T updated its full-year guidance for 2014 to closely reflect the synergies it expects to achieve from its acquisition of Leap Wireless. The company is now expecting 2014 revenues to grow by at least 4% or more, and earnings to increase in the mid-single digits.

The company will maintain capex at around $21 billion for the year, as it continues to expand its network and coverage.

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