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Dow-30 Earnings: AT&T Inc. – First Quarter 2013
AT&T (T – Free AT&T Stock Report), the nation's largest telecommunications carrier, has reported March-period results that were something of a mixed bag. Share net of $0.67 for the interim came in a nickel ahead of our $0.62 estimate, thanks to better-than-expected margins in the company's wireless segment, where tight cost controls appeared to help matters, and benefits from a favorable tax settlement (that we have chosen not to exclude). But revenues, at $31.4 billion, were on the light side, as AT&T lost key contract-based cellphone subscribers (a historic first) amidst a consumer shift toward tablet PCs and heightened competition from its bigger mobile rival, Verizon Wireless (VZ – Free Verizon Stock Report). The enterprise environment also remained rather challenging, which hampered wireline revenues. In fact, Business Solutions revenues, which are very sensitive to the macroeconomic climate, declined 3.4% during the quarter (they had risen 1.5% in the December period). This offset strength in U-verse, the company's increasingly popular high-speed Internet and video offering.
The most pressing concern for investors going forward, we think, is AT&T's apparent loss of market share to Verizon Wireless, a joint venture between Verizon Communications and Vodafone Group (VOD), in the important wireless arena. Indeed, the net loss of high-value cellphone subscribers reported in the first quarter (roughly 69,000) most likely explains why this large-cap stock traded lower, by about 5% or so, following the earnings release. The surprising subscriber slowdown partly can be explained by the maturation of the phone market as a whole, since many Americans now already own smartphones. The company does appear to have some catching up to do with Verizon, however, particularly in terms of network coverage. That said, we believe that AT&T is making the capital investments needed to shore up its infrastructure. Too, we expect any further weakness in phones to be counteracted by growth in tablets and other connected devices.
All in all, we still anticipate modest revenue growth this year. We are trimming our 2013 and 2014 share-net estimates by a nickel each, however, to $2.50 and $2.70, respectively. However, these forecasts could well prove to be conservative if AT&T, a virtual cash machine, continues to buy back its shares at an aggressive clip. Moreover, even in light of the mixed first-quarter performance, we continue to like this Dow component for defensive, income-oriented investors. The current yield is pretty attractive, at roughly 5%.
About The Company: AT&T, formerly SBC Communications, is one of the world’s largest telecom holding companies and is the largest in the United States. Its traditional (SBC only) wireline subsidiaries provide services in 13 states, including California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana, Wisconsin, Oklahoma, Kansas, Arkansas, and Nevada. The company also owns Cingular (now AT&T Wireless). It has made a number of acquisitions, including PacTel (April 1997), SNET (October 1998), Ameritech (October 1999), AT&T (November 2005), and BellSouth (December 2006). It operates a total number of consumer revenue connections of 39.3 million. In 2012, about 56% of its sales came from wireless, 18% from wireline voice operations, 25% were from the data segment, and the remainder from advertising.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.