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Leading communications firm AT&T Inc. (T - Analyst Report) reported first-quarter 2013 adjusted earnings per share of 64 cents, in-line with the Zacks Consensus Estimate. Comparing year over year, the results improved 8.5% from adjusted earnings of 59 cents.

The year-over-year growth was supported by strength in mobile data services, a well-performing broadband segment and efficient cost management.

Quarterly revenues decreased 1.5% from the prior-year quarter to $31.4 billion and missed the Zacks Consensus Estimate of $31.7 billion. Excluding the impact of Advertising Solutions unit sale, revenues increased 0.9% year over year.

Operating income decreased 2.6% year over year to $5.9 billion, while operating expenses were down 1.2% year over year at $25.4 billion.

Segment Results

Wireless revenues, including equipment sales, rose 3.4% year over year to $16.7 billion in the quarter, primarily on the higher number of smartphone sold and lower churn. Wireless data revenues leaped 21.0% year over year to approximately $5.1 billion, driven by Internet access, multimedia and text messages.

AT&T added 291,000 wireless customers in the reported quarter, totaling 107.2 million. Strong additions were attributable to the continued adoption of smartphones, including Apple Inc.’s (AAPL - Analyst Report) iPhones and Google Inc’s Android-based phones. Increased sales of tablets also aided the growth.

Retail post-paid additions were 296,000 and connected device additions were 431,000. However, the company lost about 184,000 prepaid customers (due to a drop in GoPhone along with session-based tablets) and 252,000 reseller customers (on less or no account usage).

During the quarter, the company added 1.2 million post-paid smartphone users and sold 6.0 million smartphones that comprised 81% of post-paid device sales and 88% of post-paid phone sales. At quarter-end, nearly 72% of the post-paid phone users of AT&T used smartphones. Almost 60% post-paid smartphone subscribers have 4G-based handsets.

Total churn was 1.38% compared with 1.47% in the prior-year quarter. Post-paid ARPU (average revenue per user) grew marginally year over year to $65.01, driven by healthy data growth.

Wireline revenues dipped 1.8% year over year to $14.7 billion. Although the company experienced growth in U-verse TV and High Speed Internet segments, lower voice and legacy revenues impacted the overall revenue figure.

Revenues from residential customers increased 2.0% year over year to $5.5 billion, driven by robust AT&T U-verse services. Business revenues slid 3.4% year over year to $8.9 billion, reflecting the impact of a sluggish economy. Strategic business services such as Ethernet, Virtual Private Networks, hosting, IP conferencing and application services, increased 10.8% year over year.

AT&T's total U-verse subscribers, which include TV and high-speed Internet customers, touched 8.7 million at the end of the first quarter. Total U-verse TV subscribers reached 4.8 million with the net addition of 731,000 high-speed Internet users.

Financials

As of Mar 31, 2013, AT&T had $3.9 billion in cash and cash equivalents. The company had long-term debt (including current portion) of $74.1 billion, representing a debt-to-capitalization ratio of 45.6%.

AT&T generated $8.2 billion of cash from operations in the quarter, while capital expenditure totaled $4.3 billion.  The company repurchased 168 million shares for $5.9 billion. Additionally, management approved another 300 million share buyback program.

Outlook

For 2013, AT&T expects to witness revenue growth aided by contributions from wireless services and wireline consumer business. Capital expenditure is expected to be around $21.0 billion. For 2014 and 2015, the company aims to spend around $20.0 billion each year.

Another Major Telecom Stock

The largest U.S. mobile service provider Verizon Communications Inc. (VZ - Analyst Report) reported better-than-expected first quarter 2013 results on Apr 18. Earnings of 68 cents per share surpassed the Zacks Consensus Estimate of 66 cents and improved from the year-ago figure of 59 cents.

Our Take

AT&T currently holds a Zacks Rank #2 (Buy). We expect the launch of attractive handsets coupled with new data plan offerings to add more subscribers in the coming days. Strength in business services, the planned investment program and U-verse expansion are also expected to boost the company’s performance over the next few months.
 

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