Wednesday, January 27, 2010

AT&T INC. (NYSE: T): Q4 Earnings Preview 2009

AT&T INC. (NYSE: T), the second largest US wireless carrier, is scheduled to release its fourth-quarter financial results before the opening bell on Thursday, January 28, 2009. Analysts, on average, currently expect the company to report earnings of 51 cents a share on revenue of $30.86 billion. In the year ago quarter, the company reported earnings of 45 cents per share on revenue of $31.08 billion.
AT&T Inc. operates as a communications holding company. Its subsidiaries and affiliates provide the AT&T brand services in the United States and internationally.
In the preceding third quarter, the telecommunications giant reported a 1.2% decline in profit for from last year, on continued weakness in the wireline business. Net income dropped to $3.19 billion, or $0.54 per share, from $3.23 billion, or $0.55 per share, in the prior-year quarter. Total wireline operating revenues declined 7.1% to $16.30 billion from $17.55 billion a year ago. Analysts, on average, expected the company to report earnings of $0.50 per share on revenue of $30.88 billion.
The company has been losing landlines at a rapid pace. However, the company has been able to weather the recession better due to their large size and lead over rivals in the wireless business. Total wireline operating revenues declined 7.1% to $16.30 billion from $17.55 billion a year ago.
However, the company continued to add wireless subscribers, saying it recorded the highest third-quarter net gain ever, and also reported low customer churn. Segment-wise, AT&T's wireless segment operating revenues for the third quarter rose 8.2% to $13.65 billion from $12.62 billion in the previous-year quarter. During the quarter, AT&T had a 2.0 million net gain in total wireless subscribers, up slightly from the year-ago quarter and up 48.1% compared to net adds in the preceding second quarter. Total wireless subscribers at the end of the quarter totaled 81.6 million, up 6.7 million over the past year. Retail postpaid wireless net adds were 1.4 million, down 18.2% from the year-ago period. The company said that 4.3 million postpaid 3G integrated wireless devices were added to its network during the quarter, the largest quarterly increase in the company's history. Postpaid subscriber churn was 1.17% compared to 1.22% a year ago. The company noted that the postpaid wireless subscriber churn was the best ever for a third quarter. Wireless postpaid subscriber average monthly revenues per subscriber, or ARPU, rose 3.8% year-over-year and 1.7% sequentially to $61.23, driven by strong data growth.
The company's focus on cost controls has protected its bottomline. AT&T's total operating expenses for the quarter were $25.47 billion, down 1.0% from $25.72 billion in the same period last year.
iPhone has worked wonders for AT&T. AT&T is the sole provider of Apple's iPhone, and it has been a major driver of new subscriber growth. AT&T has added millions of iPhone customers since Apple unveiled a faster model early last summer. During the quarter, the company had more than 3.2 million iPhone activations, the largest quarterly total to date, with nearly 40% of the activation for customers who were new to AT&T. The downside of such rapid growth has been increasing complaints about AT&T's network.
Despite sharp wireless growth in the past few years, the telecommunication companies face rising pressure on profits as mobile and video competition boils over and their older businesses decline. AT&T spent heavily on marketing during a holiday-season ad war. Meanwhile, there have been persistent but unconfirmed reports that Verizon will be getting the Apple (NASDAQ: AAPL) iPhone this year, ending AT&T's exclusive right to offer this wildly popular device.
At the recently concluded Consumer Electronic Show, AT&T announced that it would be adding new smartphones from Motorola Inc. (NYSE: MOT), HTC, Palm Inc. (NASDAQ: PALM) and even computer giant Dell Inc. (NASDAQ: DELL) later in 2010. AT&T also would become the first U.S. carrier to sell the Dell phone. Also at CES, AT&T announced deals with Lenovo and Mobinnova to provide wireless access for their latest netbooks, which are more powerful than existing models. In addition, AT&T plans to provide access to a digital-photo frame from Pandigital, to which photos can be sent wirelessly via email. The device is supposed to make it easy for consumers to add photos to their digital-photo frames, including photos emailed to them by family and friends. In the near future, AT&T hopes to serve autos with a variety of wireless features such as traffic monitoring and video entertainment. AT&T is working with most of the major automakers to incorporate wireless connectivity, though no products are being announced anytime soon.
Recently, AT&T Inc. introduced new unlimited wireless plans. The plans include an unlimited talk plan for $69.99 a month, an unlimited talk and text plan for $89.99 a month, and a $99.99 a month unlimited voice and data plan for Apple Inc.'s iPhone.
Among other developments, the U.S. phone company raised its quarterly dividend by a penny to 42 cents a share, reflecting the company's relatively steady finances in a weak economy.
The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 11.54 and PEG Ratio (5 yr expected) of 2.02. In terms of stock performance, AT&T shares have lost 5 percent over the past year.

Full Disclosure: None.
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