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Dow-30 Earnings: AT&T Inc. – Fourth Quarter 2012
AT&T (T - Free AT&T Stock Report), the largest communications company in the United States, has posted fourth-quarter results that were something of a mixed bag, and the stock is up just a bit on the news. Share net of $0.44 for the December period, while an improvement over last year's $0.42 tally, missed our $0.51 estimate by a decent bit, due to heightened margin pressures. This was especially true on the closely watched wireless side of the business, where better-than-expected Apple (AAPL) iPhone sales (AT&T sold 8.6 million iPhones during the period; a total of 10.2 million smartphones were activated) led to an uptick in costly handset subsidies. Still, revenue trends appeared pretty favorable during the latter stages of 2012, which, along with the attractive dividend yield (5%-plus) and the company's strong free cash flow, have given investors sufficient reason to bid up these large-cap shares in recent months.
The top line was buoyed throughout the quarter by significant wireless subscriber inroads (postpaid net additions amounted to 780,000), a double-digit increase in data revenues, and modest ARPU (average revenue per user) growth. Additionally, the traditional wireline segment was stable, despite further erosion of the access-line base. The wireline operations were supported, it seems, by strength in the carrier's relatively new U-verse Internet and video platform. Plus, the important enterprise segment, which is quite sensitive to the macroeconomic climate and has struggled of late, exhibited some hopeful signs. It registered a slight, 0.6% sequential revenue advance.
Looking ahead to 2013, AT&T anticipates share-net growth in the high-single digits, at least, thanks to moderately higher revenues (2% or so), a rebound in wireless margins, and aggressive actions on the stock-buyback front. Consequently, we are leaving our bottom-line estimate for the new year at $2.55 a share, notwithstanding the fourth-quarter earnings miss.
We continue to like this high-quality Dow component for income-oriented investors. It also makes a good defensive holding, in our view, in light of AT&T's veteran management team, excellent balance sheet and healthy cash flow (Financial Strength: A++), and stable, subscription-based business model.
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 45 million. In 2011, about 52% of its sales came from wireless, 23% from wireline voice operations, 22% 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.