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AT&T (T) Beats Q2 Earnings Estimates, Falters on Revenues
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AT&T Inc. (T - Free Report) reported mixed second-quarter 2018 results with year-over-year decline in the top line despite solid wireless performance including postpaid phone gains, strong prepaid phone growth and stable postpaid churn.
During the quarter, the company closed the acquisition of Time Warner Inc. Its consolidated results for the reported quarter include 16 days of Time Warner results.
Net Income
On a GAAP basis, AT&T reported net income of $5,132 million or 81 cents per share compared with $3,915 million or 63 cents per share in the year-ago quarter, reflecting favorable impact from U.S. corporate tax reform and new revenue accounting rules.
Adjusted earnings for the quarter came in at 91 cents per share compared with 79 cents in the year-earlier quarter. The figure beat the Zacks Consensus Estimate of 85 cents.
Quarterly consolidated revenues decreased 2.1% year over year to $38,986 million, primarily due to the impact of ASC 606, which included netting of $900 million of Universal Service Fund (USF) with operating expenses, as well as continued decline in video and legacy services. The top line missed the Zacks Consensus Estimate of $39,254 million.
During the reported quarter, AT&T experienced a net increase in total wireless subscribers of 3.1 million to reach 146.9 million in service. Postpaid churn was 1.02% compared with 1.01% in the year-ago quarter.
The company had 526,000 branded net adds, both postpaid and prepaid, including 285,000 branded smartphones. Postpaid phone-only average revenue per user decreased 7.1% year over year.
Segmental Performance
Business Solutions: Total revenues were $9,063 million, down 6.2% year over year due to the adoption of new revenue accounting standard which included changes in USF policy and decline in legacy services. Of this, Wireless service revenues totaled $1,829 million, down 8.7% year over year owing to the impact of revenue recognition and customer shifts to unlimited data plans. Wireless Equipment revenues totaled $584 million compared with $360 million in the prior-year quarter. Strategic services revenues were $3,039 million, up 2.7% due to solid performance in VPNs, Ethernet, cloud, hosting, IP conferencing, voice over IP, dedicated internet, IP broadband and security services. Legacy voice and data services contributed $2,723 million, declining 20.4% as customers moved to upgraded products. Other service and equipment generated $888 million, down 3.7% year over year.
Segment operating income was $1,960 million compared with $2,131 million in the year-ago quarter largely due to decline in legacy services and higher FirstNet expenses and wireless sales costs. Operating margin was 21.6% compared with 22% in the prior-year quarter. EBITDA was $3,447 million compared with $3,614 million in the year-ago quarter, for respective margins of 38% and 37.4%.
Entertainment Group: Total revenues were $11,650 million, down 8% year over year due to the impact of ASC 606 revenue recognition and decline in linear TV subscribers and legacy services. Video entertainment revenues were $8,331 million, down 9% due to a fall in linear TV subscribers. High-Speed Internet revenues were $1,981 million, up 2.8% led by legacy DSL decline, simplified pricing and bundle discount. Legacy voice and data services contributed $785 million. Other service and equipment generated $553 million.
Operating income was $1,452 million in the reported quarter compared with $1,642 million in the prior-year quarter, the respective margins being 12.5% and 13%. EBITDA was $2,798 million compared with $3,100 million in the year-ago quarter for respective margins of 24% and 24.5%. The year-over-year decrease in margins were primarily due to TV content-cost pressure, decline in legacy services, fewer linear subscribers and new video platform expenses.
Consumer Mobility: Total revenues were $14,869 million, down 1.5% year over year, due to the impact of new revenue accounting standards. Operating income was $4,978 million, up 5% year over year for margins of 33.5% compared with 31.4% in the prior-year quarter, due to higher postpaid smartphone volumes. EBITDA was $6,784 million compared with $6,455 million in the year-ago quarter for respective margins of 45.6% and 42.8%. The year-over-year improvement in margins was largely due to higher volume and cost efficiencies.
International: Total revenues were $1,951 million, down 3.7% year over year, largely due to foreign exchange pressures. Video entertainment revenues were $1,254 million. Wireless service revenues totaled $417 million, while wireless equipment revenues were $280 million.
Operating loss in this segment was $165 million compared with a loss of $57 million in the year-ago quarter. EBITDA was $148 million compared with $254 million in the year-ago quarter for respective margins of 7.6% and 12.5%, largely due to World Cup expenses and foreign exchange.
Cash Flow & Liquidity
AT&T generated $19,176 million of cash from operations in the first six months of 2018 compared with $17,670 million in the prior-year period. Free cash flow for the first half of the year was $7,950 million compared with $6,447 million in the year-ago period.
As of Jun 30, 2018, AT&T had $13,523 million of cash and cash equivalents with long-term debt of $168,495 million.
2018 Outlook
AT&T updated its guidance for 2018. It raised adjusted EPS to high end of the previously provided $3.50 range and free cash flow to high end of $21 billion range, inclusive of all deal and integration costs. Capital investment of approximately $25 billion; $22 billion net of expected FirstNet reimbursements and vendor financing.
Zacks Rank & Other Stocks to Consider
AT&T currently has a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader industry include Comtech Telecommunications Corp. (CMTL - Free Report) , Micron Technology, Inc. (MU - Free Report) and Windstream Holdings, Inc. . While Comtech and Micron sport a Zacks Rank #1 (Strong Buy), Windstream carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Comtech has a long-term earnings growth expectation of 5%. It beat earnings estimates in each of the trailing four quarters, the average being 123.7%.
Micron has a long-term earnings growth expectation of 8.2%. It beat earnings estimates in each of the trailing four quarters, the average being 5.9%.
Windstream exceeded earnings estimates twice in the trailing four quarters with an average positive surprise of 23.9%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
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AT&T (T) Beats Q2 Earnings Estimates, Falters on Revenues
AT&T Inc. (T - Free Report) reported mixed second-quarter 2018 results with year-over-year decline in the top line despite solid wireless performance including postpaid phone gains, strong prepaid phone growth and stable postpaid churn.
During the quarter, the company closed the acquisition of Time Warner Inc. Its consolidated results for the reported quarter include 16 days of Time Warner results.
Net Income
On a GAAP basis, AT&T reported net income of $5,132 million or 81 cents per share compared with $3,915 million or 63 cents per share in the year-ago quarter, reflecting favorable impact from U.S. corporate tax reform and new revenue accounting rules.
Adjusted earnings for the quarter came in at 91 cents per share compared with 79 cents in the year-earlier quarter. The figure beat the Zacks Consensus Estimate of 85 cents.
AT&T Inc. Price, Consensus and EPS Surprise
AT&T Inc. Price, Consensus and EPS Surprise | AT&T Inc. Quote
Revenues
Quarterly consolidated revenues decreased 2.1% year over year to $38,986 million, primarily due to the impact of ASC 606, which included netting of $900 million of Universal Service Fund (USF) with operating expenses, as well as continued decline in video and legacy services. The top line missed the Zacks Consensus Estimate of $39,254 million.
During the reported quarter, AT&T experienced a net increase in total wireless subscribers of 3.1 million to reach 146.9 million in service. Postpaid churn was 1.02% compared with 1.01% in the year-ago quarter.
The company had 526,000 branded net adds, both postpaid and prepaid, including 285,000 branded smartphones. Postpaid phone-only average revenue per user decreased 7.1% year over year.
Segmental Performance
Business Solutions: Total revenues were $9,063 million, down 6.2% year over year due to the adoption of new revenue accounting standard which included changes in USF policy and decline in legacy services. Of this, Wireless service revenues totaled $1,829 million, down 8.7% year over year owing to the impact of revenue recognition and customer shifts to unlimited data plans. Wireless Equipment revenues totaled $584 million compared with $360 million in the prior-year quarter. Strategic services revenues were $3,039 million, up 2.7% due to solid performance in VPNs, Ethernet, cloud, hosting, IP conferencing, voice over IP, dedicated internet, IP broadband and security services. Legacy voice and data services contributed $2,723 million, declining 20.4% as customers moved to upgraded products. Other service and equipment generated $888 million, down 3.7% year over year.
Segment operating income was $1,960 million compared with $2,131 million in the year-ago quarter largely due to decline in legacy services and higher FirstNet expenses and wireless sales costs. Operating margin was 21.6% compared with 22% in the prior-year quarter. EBITDA was $3,447 million compared with $3,614 million in the year-ago quarter, for respective margins of 38% and 37.4%.
Entertainment Group: Total revenues were $11,650 million, down 8% year over year due to the impact of ASC 606 revenue recognition and decline in linear TV subscribers and legacy services. Video entertainment revenues were $8,331 million, down 9% due to a fall in linear TV subscribers. High-Speed Internet revenues were $1,981 million, up 2.8% led by legacy DSL decline, simplified pricing and bundle discount. Legacy voice and data services contributed $785 million. Other service and equipment generated $553 million.
Operating income was $1,452 million in the reported quarter compared with $1,642 million in the prior-year quarter, the respective margins being 12.5% and 13%. EBITDA was $2,798 million compared with $3,100 million in the year-ago quarter for respective margins of 24% and 24.5%. The year-over-year decrease in margins were primarily due to TV content-cost pressure, decline in legacy services, fewer linear subscribers and new video platform expenses.
Consumer Mobility: Total revenues were $14,869 million, down 1.5% year over year, due to the impact of new revenue accounting standards. Operating income was $4,978 million, up 5% year over year for margins of 33.5% compared with 31.4% in the prior-year quarter, due to higher postpaid smartphone volumes. EBITDA was $6,784 million compared with $6,455 million in the year-ago quarter for respective margins of 45.6% and 42.8%. The year-over-year improvement in margins was largely due to higher volume and cost efficiencies.
International: Total revenues were $1,951 million, down 3.7% year over year, largely due to foreign exchange pressures. Video entertainment revenues were $1,254 million. Wireless service revenues totaled $417 million, while wireless equipment revenues were $280 million.
Operating loss in this segment was $165 million compared with a loss of $57 million in the year-ago quarter. EBITDA was $148 million compared with $254 million in the year-ago quarter for respective margins of 7.6% and 12.5%, largely due to World Cup expenses and foreign exchange.
Cash Flow & Liquidity
AT&T generated $19,176 million of cash from operations in the first six months of 2018 compared with $17,670 million in the prior-year period. Free cash flow for the first half of the year was $7,950 million compared with $6,447 million in the year-ago period.
As of Jun 30, 2018, AT&T had $13,523 million of cash and cash equivalents with long-term debt of $168,495 million.
2018 Outlook
AT&T updated its guidance for 2018. It raised adjusted EPS to high end of the previously provided $3.50 range and free cash flow to high end of $21 billion range, inclusive of all deal and integration costs. Capital investment of approximately $25 billion; $22 billion net of expected FirstNet reimbursements and vendor financing.
Zacks Rank & Other Stocks to Consider
AT&T currently has a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader industry include Comtech Telecommunications Corp. (CMTL - Free Report) , Micron Technology, Inc. (MU - Free Report) and Windstream Holdings, Inc. . While Comtech and Micron sport a Zacks Rank #1 (Strong Buy), Windstream carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Comtech has a long-term earnings growth expectation of 5%. It beat earnings estimates in each of the trailing four quarters, the average being 123.7%.
Micron has a long-term earnings growth expectation of 8.2%. It beat earnings estimates in each of the trailing four quarters, the average being 5.9%.
Windstream exceeded earnings estimates twice in the trailing four quarters with an average positive surprise of 23.9%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>