AT&T Gives Up Revenue and Profits to Keep Customers

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AT&T Inc. (NYSE: T) reported second quarter 2014 results after markets closed Wednesday. The telecom giant reported adjusted diluted quarterly earnings per share (EPS) of $0.62 on revenues of $32.6 billion. In the same period a year ago, the company reported EPS of $0.67 on revenues of $32.08 billion. Second-quarter results compare to the consensus estimates for EPS of $0.63 on revenues of $33.22 billion.

Wireless revenues rose 3.7% year-over-year and totaled $17.9 billion, down sequentially from $18.44 billion in the first quarter. That total marks a 4.5% year-over-year increase. Wireless operating margins rose to 24.1%, up sequentially from 28.3% but down year-over-year from 27.1%.

Wireline revenues totaled $14.6 billion for the quarter, down 0.9% year-over-year and essentially flat sequentially. Operating margins fell from 11.1% a year ago to 9.7% this year, and are down from 9.9% in the first quarter of this year..

AT&T said it added a net 1.03 million postpaid wireless customers in the quarter, its largest one-quarter gain in five years. Where things go a little askew is in average revenue per user (ARPU) which dropped 7.7% year-over-year for phone-only postpaid subscribers. For customers on the company’s Next monthly billing plan, ARPU fell 4.7%. AT&T says that as customers upgrade equipment under the Next plan the company expects monthly billings to increase.

The company’s CEO said:

The quarter was marked by several transformative moves to grow our wireless, broadband and video services. We announced our intent to acquire DIRECTV, which will improve our video position and our ability to bundle broadband, mobility and video services nationally. Our move to simple pricing and no-device-subsidy plans is repositioning the wireless business model, resulting in our best postpaid net adds in nearly five years and our lowest-ever postpaid churn.

AT&T guided full-year 2014 revenue growth of 5% and expects stable consolidated margins. Adjusted EPS growth is expected to improve at the low-end of the mid-single digit range. Revenue guidance is higher than the consensus estimate of $133.93 billion for 2014, while the earnings guidance appears to be short of the consensus estimate of $2.67 by about a dime.

Shares are down about 1.3% at $35.40 in after-hours trading after closing at $35.88. The stock’s 52-week range is $31.74 to $36.86. Prior to today’s release Thomson/Reuters had a consensus price target of around $36.00 on the company’s shares.

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