AT&T (T, Financial) came out with its first quarter 2015 earnings result on Wednesday. Investor sentiment was positive, which got reflected in the company’s shares that were trading up 4.4% to $34.30 after the company reported its earnings. The wireless carrier beat analysts’ earnings estimate. However, revenue came in lower than expectations. Here’s a look at the quarter numbers in a snapshot and the latest updates on the Dallas-based telecom player.
Into the numbers
AT&T’s quarterly consolidated revenue increased 0.3% to $32.6 billion. The company registered earnings per share of $0.63, above analysts' expectation of $0.62. Its net income declined 13.5% as expenses went up. It recorded net income of $3.2 billion against last year’s $3.7 billion. However, the second largest American telecom player saw growth in its wireless business.
The rise in revenue was driven by the wireless segment, which reported revenue of $18.2 billion - an improvement of 1.8% compared with last year. Wireless equipment revenue jumped by a staggering 36% to $3.4 billion – a result of AT&T’s effort of driving customers into equipment installment plans. The telecom player continued its effort of endorsing no-device-subsidy AT&T Next and Mobile Share Value plans to reduce reliance on subsidized services.
The company added 1.2 million wireless subscribers that was primarily driven by postpaid and connected devices. Around 441,000 postpaid subscribers and 98,000 prepaid customers were added during the quarter. Though postpaid subscriber addition was higher than what AT&T had expected, it was lower than analysts’ estimation. Also, that compares with 625,000 postpaid net additions recorded in the year ago quarter. AT&T’s postpaid ARPU (average revenue per user) dropped 9.6%, though only 1.02% postpaid subscribers left the company’s services. All this is a clear indication of the increasing pressure on the wireless segment from smaller rivals Sprint (S, Financial) and T-Mobile (TMUS, Financial).
The wireline segment reported a revenue decline of 3.1% to $14.1 billion as the business customer segment didn’t perform well. However, adjusted U-verse revenue rose 20.3% from a year ago period. U-verse now accounts for nearly 70% of the revenue from wireline consumers, which stood at 59% a year earlier. The broadband subscriber base increased by 440,000 customers.
The DirecTV deal
The most important event to look at is AT&T’s deal to acquire DirecTV (DTV, Financial). During the earnings call, the company said that it expects to close the acquisition transaction in the second quarter. AT&T will pay $48.5 billion to purchase DirecTV.
The company has raised its expectations of synergies from the combination deal. Earlier, it had anticipated to see an annual cost savings of $1.6 billion in three years from the date the deal closes. Now it estimates to save at least $2.5 billion annually in three years. That’s great news as it would have a positive bearing on the company’s bottom line, thereby increasing returns to its shareholders.
The takeaway
There’s no doubt that AT&T’s feeling competitive pressure from Sprint and T-Mobile that are making aggressive strategies and introducing attractive plans to draw customers. It’s definitely impacting the company’s subscriber addition, particularly postpaid subscribers. However, the company is trying to mitigate this by boosting tablet subscribers. The acquisition of DirecTV should support AT&T expand its customer base while solidifying its broadband services. The quarter results may have been mixed with falling net income and lower return on equity. However, the company has strong fundamentals and is a good consideration for long term investors.
