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AT&T (T) Q3 Earnings, Revenues Lag Estimates on Cord-Cutting
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AT&T Inc. (T - Free Report) reported disappointing third-quarter 2017 financial results. Both the top and the bottom line of the company missed the Zacks Consensus Estimate. Importantly, in the domestic market, net additions of its postpaid wireless subscribers declined a massive 44.8% year over year.
Net Income
On a GAAP basis, AT&T reported net income of $3,029 million or 49 cents per share compared with $3,328 million or 54 cents, from the year-ago quarter. Quarterly adjusted (excluding non-recurring items) earnings per share came in at 74 cents, a penny shy of the Zacks Consensus Estimate.
Quarterly total revenues declined 3% year over year to $39,668 million, primarily due to declines in video subscriptions. Further, revenues also missed the Zacks Consensus Estimate of $40,266 million. Of the total, Services revenues were $36,378 million, down 2.4% year over year and Equipment revenues were $3,290 million, reflecting a decline of 9.1% year over year.
Operating Metrics
Total operating expenses in third-quarter 2017 were $33,265 million compared with $34,482 million in the prior-year quarter. Operating income was $6,403 million compared with $6,408 million in the year-ago quarter. Operating income margin was 16.1% compared with 15.7% from the prior-year quarter. EBITDA was 12,445 million compared with $12,987 million in the prior-year quarter. EBITDA margin was 31.4% compared with 31.8% in the prior-year quarter.
Cash Flow
In the third quarter of 2017, AT&T generated $11,114 million of cash from operations compared with $10,995 million from the prior-year quarter. Free cash flow in the reported quarter was $5,863 million compared with $5,182 million a year ago.
Liquidity
At the end of the third quarter of 2017, AT&T had $48,499 million of cash and cash equivalents compared with $7,208 million at the end of Jun 2016 and $5,788 million at the end of 2016. The company had $163,279 million of total debt outstanding compared with $113,681 million at the end of 2016. The debt-to-capitalization ratio was 0.55 compared with 0.48 at the end of 2016.
Business Solutions Segment
Total revenues at the segment were $17,061 million, declining 4% year over year. Of this, Wireless service revenues totaled $8,034 million, inching down 0.2% year over year while Wireless Equipment revenues totaled $1,654 million, down 11.8%. Fixed strategic services revenues reached $3,087 million, up 6%. Legacy voice and data services contributed $3,434 million, declining 15%. Other service & equipment generated $852 million, down 3.8%.
Operating income was $4,503 million compared with $4,303 million in the year-ago quarter. However, operating margin was 26.4% compared with 24.2% in the prior-year quarter.
As of Sep 30, 2017, Business Solutions wireless subscriber base was 87.398 million, reflecting an increase of 10% year over year, wherein, Postpaid wireless subscriber count was 51.412 million, Connected Devices were 35.909 million and Resellers were 0.077 million. In the reported quarter, this segment gained net 15,000 (down 92.1%) postpaid wireless customers, 2.292 million (up 77.7%) connected devices and 2,000 (up 100%) resellers. Business wireless postpaid churn rate was 1.01% compared with 0.97% in the year-ago quarter. Total IP broadband connections were 1.017 million, up 5.6% year over year. IP-broadband net addition was 25,000 (up 66.7%).
Entertainment Group Segment
Total revenues at the segment grossed $12,648 million, inching down 0.6% year over year. Of the total, video entertainment revenues were $9,200 million, up 1.9%. High-Speed Internet revenues were $1,916 million, up 1.3%. Legacy voice and data services contributed $949 million, down 18.8%. Equipment and Other service generated $583 million, down 8%.
Operating income was $1,316 million in the reported quarter compared with $1,488 million in the prior-year quarter. Operating margin was 10.4%, compared with 11.7% a year ago.
As of Sep 30, total video connections in this segment were 25.083 million, down 0.8%. Of the total, Satellite connections tallied 20.605 million, down 0.8%. U-verse connections were 3.691 million, down 18.3%. DIRECTV NOW connections were 0.787 million. In the reported quarter, AT&T lost 251,000 satellite TV customers and 134 U-verse TV customers. However, it gained 296,000 DIRECTV NOW connections.
Total broadband connections at this segment were 14.331 million, up 1.1% year over year. Of the total, IP-broadband was pegged at 13.367 million, while DSL-broadband was 0.964 million. In the reported quarter the company added a net 125,000 IP broadband customers but lost 96,000 DSL broadband customers. Total wireline voice connections were 10.333 million, down 10.4% year over year.
Consumer Mobility Segment
Total revenues at the segment were $7,748 million, reflecting a decline of 6.3% year over year. Of the total, Service revenues were $6,507 million, down 5.9%. Equipment revenues generated $1,241 million, decreasing 8.3%.
Operating income was $2,320 million, down 9.8% year over year. Operating margin was 29.9% compared with 31.1% in the prior-year quarter.
As of Sep 30, Consumer Mobility wireless subscriber base was 51.428 million, reflecting a decline of 4.6%. Of this, postpaid wireless subscribers totaled 26.003 million (down 5%) and prepaid wireless customers were 15.136 million (up 16.1%). Reseller base was 9.800 million (down 22%) and Connected Devices subscriber base totaled 0.489 million (down 47.8%). In the reported quarter, this segment gained a net of 102,000 postpaid wireless customers, 324,000 prepaid wireless customers and lost a net of 394,000 resellers and 18,000 connected devices subscribers. Consumer Mobility postpaid churn rate was 1.17% compared with 1.19% in the year-ago quarter. Total churn rate for the segment was 2.37%, up from 2.11% in the year-ago quarter.
International Segment
Total revenues at the segment were $2,099 million, up 11.7% year over year. Video entertainment revenues were $1,363 million, reflecting an increase of 5.1%. Wireless service revenues were $536 million, up 10.7%. Wireless Equipment revenues were $200 million, up 104.1%. Operating loss of this segment was $125 million compared with $53 million in the year-ago quarter.
The International wireless subscriber base was 13.779 million, up 28.8% year over year. In the reported quarter, this segment gained a net of 697,000 wireless customers. The International video subscriber base touched 13.490 million, up 8.1% year over year. However, the company lost 132,000 International video customers in the reported quarter.
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AT&T (T) Q3 Earnings, Revenues Lag Estimates on Cord-Cutting
AT&T Inc. (T - Free Report) reported disappointing third-quarter 2017 financial results. Both the top and the bottom line of the company missed the Zacks Consensus Estimate. Importantly, in the domestic market, net additions of its postpaid wireless subscribers declined a massive 44.8% year over year.
Net Income
On a GAAP basis, AT&T reported net income of $3,029 million or 49 cents per share compared with $3,328 million or 54 cents, from the year-ago quarter. Quarterly adjusted (excluding non-recurring items) earnings per share came in at 74 cents, a penny shy of the Zacks Consensus Estimate.
AT&T Inc. Price, Consensus and EPS Surprise
AT&T Inc. Price, Consensus and EPS Surprise | AT&T Inc. Quote
Revenues
Quarterly total revenues declined 3% year over year to $39,668 million, primarily due to declines in video subscriptions. Further, revenues also missed the Zacks Consensus Estimate of $40,266 million. Of the total, Services revenues were $36,378 million, down 2.4% year over year and Equipment revenues were $3,290 million, reflecting a decline of 9.1% year over year.
Operating Metrics
Total operating expenses in third-quarter 2017 were $33,265 million compared with $34,482 million in the prior-year quarter. Operating income was $6,403 million compared with $6,408 million in the year-ago quarter. Operating income margin was 16.1% compared with 15.7% from the prior-year quarter. EBITDA was 12,445 million compared with $12,987 million in the prior-year quarter. EBITDA margin was 31.4% compared with 31.8% in the prior-year quarter.
Cash Flow
In the third quarter of 2017, AT&T generated $11,114 million of cash from operations compared with $10,995 million from the prior-year quarter. Free cash flow in the reported quarter was $5,863 million compared with $5,182 million a year ago.
Liquidity
At the end of the third quarter of 2017, AT&T had $48,499 million of cash and cash equivalents compared with $7,208 million at the end of Jun 2016 and $5,788 million at the end of 2016. The company had $163,279 million of total debt outstanding compared with $113,681 million at the end of 2016. The debt-to-capitalization ratio was 0.55 compared with 0.48 at the end of 2016.
Business Solutions Segment
Total revenues at the segment were $17,061 million, declining 4% year over year. Of this, Wireless service revenues totaled $8,034 million, inching down 0.2% year over year while Wireless Equipment revenues totaled $1,654 million, down 11.8%. Fixed strategic services revenues reached $3,087 million, up 6%. Legacy voice and data services contributed $3,434 million, declining 15%. Other service & equipment generated $852 million, down 3.8%.
Operating income was $4,503 million compared with $4,303 million in the year-ago quarter. However, operating margin was 26.4% compared with 24.2% in the prior-year quarter.
As of Sep 30, 2017, Business Solutions wireless subscriber base was 87.398 million, reflecting an increase of 10% year over year, wherein, Postpaid wireless subscriber count was 51.412 million, Connected Devices were 35.909 million and Resellers were 0.077 million. In the reported quarter, this segment gained net 15,000 (down 92.1%) postpaid wireless customers, 2.292 million (up 77.7%) connected devices and 2,000 (up 100%) resellers. Business wireless postpaid churn rate was 1.01% compared with 0.97% in the year-ago quarter. Total IP broadband connections were 1.017 million, up 5.6% year over year. IP-broadband net addition was 25,000 (up 66.7%).
Entertainment Group Segment
Total revenues at the segment grossed $12,648 million, inching down 0.6% year over year. Of the total, video entertainment revenues were $9,200 million, up 1.9%. High-Speed Internet revenues were $1,916 million, up 1.3%. Legacy voice and data services contributed $949 million, down 18.8%. Equipment and Other service generated $583 million, down 8%.
Operating income was $1,316 million in the reported quarter compared with $1,488 million in the prior-year quarter. Operating margin was 10.4%, compared with 11.7% a year ago.
As of Sep 30, total video connections in this segment were 25.083 million, down 0.8%. Of the total, Satellite connections tallied 20.605 million, down 0.8%. U-verse connections were 3.691 million, down 18.3%. DIRECTV NOW connections were 0.787 million. In the reported quarter, AT&T lost 251,000 satellite TV customers and 134 U-verse TV customers. However, it gained 296,000 DIRECTV NOW connections.
Total broadband connections at this segment were 14.331 million, up 1.1% year over year. Of the total, IP-broadband was pegged at 13.367 million, while DSL-broadband was 0.964 million. In the reported quarter the company added a net 125,000 IP broadband customers but lost 96,000 DSL broadband customers. Total wireline voice connections were 10.333 million, down 10.4% year over year.
Consumer Mobility Segment
Total revenues at the segment were $7,748 million, reflecting a decline of 6.3% year over year. Of the total, Service revenues were $6,507 million, down 5.9%. Equipment revenues generated $1,241 million, decreasing 8.3%.
Operating income was $2,320 million, down 9.8% year over year. Operating margin was 29.9% compared with 31.1% in the prior-year quarter.
As of Sep 30, Consumer Mobility wireless subscriber base was 51.428 million, reflecting a decline of 4.6%. Of this, postpaid wireless subscribers totaled 26.003 million (down 5%) and prepaid wireless customers were 15.136 million (up 16.1%). Reseller base was 9.800 million (down 22%) and Connected Devices subscriber base totaled 0.489 million (down 47.8%). In the reported quarter, this segment gained a net of 102,000 postpaid wireless customers, 324,000 prepaid wireless customers and lost a net of 394,000 resellers and 18,000 connected devices subscribers. Consumer Mobility postpaid churn rate was 1.17% compared with 1.19% in the year-ago quarter. Total churn rate for the segment was 2.37%, up from 2.11% in the year-ago quarter.
International Segment
Total revenues at the segment were $2,099 million, up 11.7% year over year. Video entertainment revenues were $1,363 million, reflecting an increase of 5.1%. Wireless service revenues were $536 million, up 10.7%. Wireless Equipment revenues were $200 million, up 104.1%. Operating loss of this segment was $125 million compared with $53 million in the year-ago quarter.
The International wireless subscriber base was 13.779 million, up 28.8% year over year. In the reported quarter, this segment gained a net of 697,000 wireless customers. The International video subscriber base touched 13.490 million, up 8.1% year over year. However, the company lost 132,000 International video customers in the reported quarter.
AT&T competes with the likes of Verizon Communications Inc. (VZ - Free Report) , T-Mobile US Inc. (TMUS - Free Report) and Sprint Corp. (S - Free Report) in the highly price-sensitive U.S. wireless market. The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
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