U.S telecom bellwether, AT&T Inc. (T Quick QuoteT - Free Report) reported mixed financial results in the second quarter of 2016. While the top line failed to meet the Zacks Consensus Estimate, the bottom line barely met the same. In the reported quarter, the company’s total video subscribers dropped by 49,000. AT&T added 342,000 DIRECTV subscribers, but lost 391,000 U-verse TV customers.

On a GAAP basis, AT&T reported net income of $3,408 million or 55 cents per share in comparison with $3,082 million or 59 cents per share in the year-ago quarter. Quarterly adjusted earnings per share came in at 72 cents, in line with the Zacks Consensus Estimate.

Quarterly total revenue increased 22.7% year over year to $40,520 million, lagging the Zacks Consensus Estimate of $40,661 million. Total operating expenses in the reported quarter were $33,960 million, up 24.7% year over year. Operating income was $6,560 million compared with $5,773 million in the year-ago quarter.

Cash Flow & Liquidity

In the first half of 2016, AT&T generated $18,207 million of cash from operations compared with $15,898 million in the year-ago period. Free cash flow in the reported period was $8,505 million compared with $7,570 million in the prior-year period.

At the end of the first half of 2016, AT&T had $7,208 million of cash and cash equivalents and $126,836 million of total debt outstanding compared with $5,121 million and $126,151 million respectively, at the end of 2015. The debt-to-capitalization ratio was 0.48 at the end of the second quarter 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 $17,579 million, down 0.5% year over year. Of this, Wireless service revenues were $7,963 million, up 2.7% year over year. Fixed strategic services revenues reached $2,797 million, up 8.4%. Legacy voice and data services contributed $4,158 million, down 11.2%. Other service & equipment generated $886 million, up 3.7% while Wireless Equipment revenues totalled $1,775 million, down 1.0%. Operating income was $4,201 million, down 0.7%. Operating margin was 23.9% compared with 24% in the prior-year quarter.

As of Jun 30, 2016, the Business Solutions wireless subscriber base was 77,545,000, up 12.1%. Within this, Postpaid wireless subscribers were 49,432,000, Reseller wireless subscribers were 52,000 and Connected Devices were 28,061,000. In the reported quarter, this segment gained a net of 185,000 Postpaid wireless customers and 1,199,000 Connected Devices but lost 13,000 Resellers. Business wireless postpaid churn rate was 0.91% flat year over year.

Entertainment and Internet Services Segment 

Total revenue at the segment grossed $12,711 million, up a whopping 119.8% year over year (after the DIRECTV acquisition). Within the total, Video entertainment revenues were $8,963 million, up an enormous 350.2%. High-Speed Internet revenues were $1,867 million, up 15%. Legacy voice and data services contributed $1,244 million, down 17.9%. Equipment and Other service generated $637 million, down 2.3%. Operating income was $1,653 million versus an operating loss of $196 million in the prior-year quarter. Operating margin was 13%, a reversal from a negative 3.4% in the year-earlier quarter.

As of Jun 30, 2016, total video connections at this segment were 25,295,000, up a whopping 325.4%. Of the total, Satellite connections tallied 20,454,000 and U-verse connections were 4,841,000. In the reported quarter, AT&T lost 391,000 U-verse customers but gained 342,000 satellite TV customers. Total broadband connections at this segment were 14,181,000, down 1.7%. Total wireline voice connections were 11,815,000, down 11.2%.

Consumer Mobility Segment

Total revenue at the segment was $8,186 million, down 6.5% year over year. Within the total, Service revenues were $6,948 million, down 5.6%. Equipment segment generated $1,238 million, up 6.4%. Equipment revenues were $1,618 million, down 11.3%. Operating income was $2,574 million, down 1.7%. Operating margin was 31.4% compared with 29.9% in the prior-year quarter.

As of Jun 30, 2016, the Consumer Mobility wireless subscriber base was 54,260,000, down 0.8%. Of this, Postpaid wireless subscribers totalled 27,862,000 and Prepaid wireless customers were 12,633,000. Reseller wireless subscribers were 12,869,000 and Connected Devices were 896,000. In the reported quarter, this segment gained a net 72,000 postpaid wireless customers and 365,000 prepaid customers but lost a net 446,000 resellers and 1,000 connected devices. Consumer Mobility postpaid churn rate was 1.09% compared with 1.16% in the year-ago quarter. Total churn rate for the segment was 1.96%, up from 1.86% in the year-ago quarter.

International Segment

Total revenue at the segment was $1,828 million. Within the total, Video entertainment revenues were $1,222 million. Wireless service revenues were $489 million. Wireless Equipment revenues were $117 million. Operating loss was $193 million and operating margin was a negative 10.6%.

As of Jun 30, 2016, the International wireless subscriber base was 9,955,000. In the reported quarter, this segment gained a net of 742,000 wireless customers. Total churn rate was 5.83%. The International video subscriber base touched 12,523,000. The company gained 87,000 International video customers in the reported quarter.

Zacks Rank & Stocks to Consider

AT&T currently carries a Zacks Rank #2 (Buy). Other favorably ranked stocks in this industry include Windstream Holdings Inc. , Telefonica Brasil SA (VIV Quick QuoteVIV - Free Report) and Cincinnati Bell Inc. . All three stocks currently carry a Zacks Rank #2.

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