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AT&T (T) Misses Q3 Earnings Estimates, Trumps on Revenues
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AT&T Inc. (T - Free Report) reported solid third-quarter 2018 results with year-over-year increase in the top line with solid wireless performance including postpaid phone gains, strong prepaid phone growth and accretive WarnerMedia contribution. The company also recorded healthy improvement in GAAP earnings, although recurring earnings for the quarter failed to beat the Zacks Consensus Estimate.
Net Income
On a GAAP basis, AT&T reported net income of $4,718 million or 65 cents per share compared with $3,029 million or 49 cents per share in the year-ago quarter, reflecting favorable impact from U.S. corporate tax reform and healthy revenue growth.
Adjusted earnings for the quarter increased to 90 cents per share from 74 cents in the year-earlier quarter, but missed the Zacks Consensus Estimate by 3 cents.
Quarterly consolidated revenues increased 15.3% year over year to $45,739 million, primarily due to the accretive Time Warner acquisition. The top line beat the Zacks Consensus Estimate of $45,630 million.
Operating income was $7.3 billion, up 25.2% primarily due to the Time Warner acquisition, resulting in operating income margin of 15.9% versus 14.6% in the year-ago quarter. During the reported quarter, AT&T experienced a record net increase in total wireless subscribers of 3.4 million to reach 150.3 million in service. Postpaid churn was 1.17% compared with 1.06% in the year-ago quarter.
The company had 338,000 branded net adds, both postpaid and prepaid, including 486,000 branded smartphones. Postpaid phone-only average revenue per user decreased 5.1% year over year to $55.65.
Segmental Performance
AT&T has reorganized its operating segments to better reflect its current businesses. The new segments of the company are Communications, WarnerMedia, Latin America, and Xandr.
Communications: This segment includes three separate business units namely, Mobility, Entertainment Group and Business Wireline. Mobility provides wireless service to consumer and wholesale subscribers throughout the United States and its territories. The Entertainment Group provides video, high-speed Internet and communications services predominantly to residential customers in the United States. Business Wireline provides communications services to more than 3 million business customers, including multinational corporations and government and wholesale customers.
Total segment revenues were $36,230 million, down 2.4% year over year as gains in the Mobility business were offset by decline in the Entertainment Group and Business Wireline. The Mobility unit was largely driven by higher equipment revenues from increased postpaid smartphone sales. AT&T recorded 7.1 million branded smartphone gross additions and upgrades in the quarter. Revenues from the Entertainment Group were impacted by the new accounting standards of revenue recognition, declines in linear TV subscribers and legacy services. Decline in legacy products further led to lower revenues in the Business Wireline.
Segment operating income was $8,182 million compared with $8,071 million in the year-ago quarter largely due to continued focus on cost initiatives. Operating margin was 22.6% compared with 21.7% in the prior-year quarter. EBITDA was $12,790 million compared with $12,647 million in the year-ago quarter, for respective margins of 35.3% and 34.1%.
WarnerMedia: This segment represents the various business units of the erstwhile Time Warner namely, Turner, Home Box Office and Warner Bros. It also includes AT&T’s Regional Sports Networks (RSNs) in the Turner division and Otter Media.
Total segment revenues were $8,204 million, up 6.5% year over year due to solid performance from all business units. Operating income improved 9.1% to $2,528 million owing to strong gains from Turner and Home Box Office units for corresponding margin of 31.3%. EBITDA was $2,701 million for a corresponding margin of 32.9%.
Latin America: The segment comprises wireless services in Mexico and pay-TV entertainment services in Latin America under Vrio. AT&T also owns 41% of Sky Mexico, financial results of which are accounted for as an equity-method investment.
Total revenues were $1,833 million, down 12.7% year over year, due to adverse foreign currency translation. EBITDA decreased to $87 million from $162 million in the year-ago quarter for respective margins of 4.7% and 7.7%, primarily due to foreign exchange.
Xandr: Xandr is AT&T’s new advertising and analytics firm, which provides targeted advertising services leveraging data insights. The company aims to create a new option for advertisers and publishers to reach specific audiences at scale in trusted, premium content environments.
Total revenues were $445 million, up 33.6% year over year, while operating income improved 13.3% to $333 million.
Cash Flow & Liquidity
AT&T generated $12,346 million of cash from operations during the quarter compared with $10,803 million in the prior-year period, bring the respective tallies for the first nine months of the year to $31,522 million and $28,473 million. As of Sep 30, 2018, AT&T had $8,657 million of cash and cash equivalents with long-term debt of $168,513 million.
2018 Outlook Reiterated
AT&T reiterated its guidance for 2018 and continues to expect adjusted EPS at the high end of the previously provided $3.50 range and free cash flow at the high end of $21 billion range, inclusive of all deal and integration costs. Net capital expenditure is likely to be approximately $22 billion.
Moving Forward
With solid performance from the Wireless business and incremental contribution from WarnerMedia assets, AT&T is poised to continue its healthy growth momentum. The company also remains focused on managing its debt portfolio and is well on track to achieve its set target of 2.5x debt-to-EBITDA range by year-end 2019. AT&T is ramping up its FirstNet program and revamping lineup of video products, pricing and promotion initiatives. At the same time, the company remains well poised to benefit from the 5G era, introducing 5G mobile in parts of 12 cities by the year end. We remain impressed with the inherent growth potential of this stock.
Zacks Rank & Stocks to Consider
AT&T currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include United States Cellular Corporation (USM - Free Report) , sporting Zacks Rank #1 (Strong Buy), and ATN International, Inc. (ATNI - Free Report) and Harris Corporation , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
United States Cellular Corporation delivered an average positive earnings surprise of 340.4% in the trailing four quarters, beating estimates in each.
ATN International has delivered an average positive earnings surprise of 146.1% in the trailing four quarters, beating estimates thrice.
Harris has a long-term earnings growth expectation of 6%. It delivered an average positive earnings surprise of 7.1% in the trailing four quarters, beating estimates on each occasion.
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AT&T (T) Misses Q3 Earnings Estimates, Trumps on Revenues
AT&T Inc. (T - Free Report) reported solid third-quarter 2018 results with year-over-year increase in the top line with solid wireless performance including postpaid phone gains, strong prepaid phone growth and accretive WarnerMedia contribution. The company also recorded healthy improvement in GAAP earnings, although recurring earnings for the quarter failed to beat the Zacks Consensus Estimate.
Net Income
On a GAAP basis, AT&T reported net income of $4,718 million or 65 cents per share compared with $3,029 million or 49 cents per share in the year-ago quarter, reflecting favorable impact from U.S. corporate tax reform and healthy revenue growth.
Adjusted earnings for the quarter increased to 90 cents per share from 74 cents in the year-earlier quarter, but missed the Zacks Consensus Estimate by 3 cents.
AT&T Inc. Price, Consensus and EPS Surprise
AT&T Inc. Price, Consensus and EPS Surprise | AT&T Inc. Quote
Quarter Details
Quarterly consolidated revenues increased 15.3% year over year to $45,739 million, primarily due to the accretive Time Warner acquisition. The top line beat the Zacks Consensus Estimate of $45,630 million.
Operating income was $7.3 billion, up 25.2% primarily due to the Time Warner acquisition, resulting in operating income margin of 15.9% versus 14.6% in the year-ago quarter. During the reported quarter, AT&T experienced a record net increase in total wireless subscribers of 3.4 million to reach 150.3 million in service. Postpaid churn was 1.17% compared with 1.06% in the year-ago quarter.
The company had 338,000 branded net adds, both postpaid and prepaid, including 486,000 branded smartphones. Postpaid phone-only average revenue per user decreased 5.1% year over year to $55.65.
Segmental Performance
AT&T has reorganized its operating segments to better reflect its current businesses. The new segments of the company are Communications, WarnerMedia, Latin America, and Xandr.
Communications: This segment includes three separate business units namely, Mobility, Entertainment Group and Business Wireline. Mobility provides wireless service to consumer and wholesale subscribers throughout the United States and its territories. The Entertainment Group provides video, high-speed Internet and communications services predominantly to residential customers in the United States. Business Wireline provides communications services to more than 3 million business customers, including multinational corporations and government and wholesale customers.
Total segment revenues were $36,230 million, down 2.4% year over year as gains in the Mobility business were offset by decline in the Entertainment Group and Business Wireline. The Mobility unit was largely driven by higher equipment revenues from increased postpaid smartphone sales. AT&T recorded 7.1 million branded smartphone gross additions and upgrades in the quarter. Revenues from the Entertainment Group were impacted by the new accounting standards of revenue recognition, declines in linear TV subscribers and legacy services. Decline in legacy products further led to lower revenues in the Business Wireline.
Segment operating income was $8,182 million compared with $8,071 million in the year-ago quarter largely due to continued focus on cost initiatives. Operating margin was 22.6% compared with 21.7% in the prior-year quarter. EBITDA was $12,790 million compared with $12,647 million in the year-ago quarter, for respective margins of 35.3% and 34.1%.
WarnerMedia: This segment represents the various business units of the erstwhile Time Warner namely, Turner, Home Box Office and Warner Bros. It also includes AT&T’s Regional Sports Networks (RSNs) in the Turner division and Otter Media.
Total segment revenues were $8,204 million, up 6.5% year over year due to solid performance from all business units. Operating income improved 9.1% to $2,528 million owing to strong gains from Turner and Home Box Office units for corresponding margin of 31.3%. EBITDA was $2,701 million for a corresponding margin of 32.9%.
Latin America: The segment comprises wireless services in Mexico and pay-TV entertainment services in Latin America under Vrio. AT&T also owns 41% of Sky Mexico, financial results of which are accounted for as an equity-method investment.
Total revenues were $1,833 million, down 12.7% year over year, due to adverse foreign currency translation. EBITDA decreased to $87 million from $162 million in the year-ago quarter for respective margins of 4.7% and 7.7%, primarily due to foreign exchange.
Xandr: Xandr is AT&T’s new advertising and analytics firm, which provides targeted advertising services leveraging data insights. The company aims to create a new option for advertisers and publishers to reach specific audiences at scale in trusted, premium content environments.
Total revenues were $445 million, up 33.6% year over year, while operating income improved 13.3% to $333 million.
Cash Flow & Liquidity
AT&T generated $12,346 million of cash from operations during the quarter compared with $10,803 million in the prior-year period, bring the respective tallies for the first nine months of the year to $31,522 million and $28,473 million. As of Sep 30, 2018, AT&T had $8,657 million of cash and cash equivalents with long-term debt of $168,513 million.
2018 Outlook Reiterated
AT&T reiterated its guidance for 2018 and continues to expect adjusted EPS at the high end of the previously provided $3.50 range and free cash flow at the high end of $21 billion range, inclusive of all deal and integration costs. Net capital expenditure is likely to be approximately $22 billion.
Moving Forward
With solid performance from the Wireless business and incremental contribution from WarnerMedia assets, AT&T is poised to continue its healthy growth momentum. The company also remains focused on managing its debt portfolio and is well on track to achieve its set target of 2.5x debt-to-EBITDA range by year-end 2019. AT&T is ramping up its FirstNet program and revamping lineup of video products, pricing and promotion initiatives. At the same time, the company remains well poised to benefit from the 5G era, introducing 5G mobile in parts of 12 cities by the year end. We remain impressed with the inherent growth potential of this stock.
Zacks Rank & Stocks to Consider
AT&T currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include United States Cellular Corporation (USM - Free Report) , sporting Zacks Rank #1 (Strong Buy), and ATN International, Inc. (ATNI - Free Report) and Harris Corporation , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
United States Cellular Corporation delivered an average positive earnings surprise of 340.4% in the trailing four quarters, beating estimates in each.
ATN International has delivered an average positive earnings surprise of 146.1% in the trailing four quarters, beating estimates thrice.
Harris has a long-term earnings growth expectation of 6%. It delivered an average positive earnings surprise of 7.1% in the trailing four quarters, beating estimates on each occasion.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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