AT&T Earnings Struggle Between More Subscribers, Lower Equipment Prices

AT&T Inc. (NYSE: T) reported first-quarter 2016 results after markets closed on Tuesday. The telecom giant reported adjusted diluted quarterly earnings per share (EPS) of $0.72 on revenues of $40.5 billion. In the same period a year ago, the company reported EPS of $0.63 on revenues of $32.58 billion. First-quarter results compare to the consensus estimates for EPS of $0.69 on revenues of $40.47 billion.

On a GAAP basis, the company reported quarterly EPS of $0.61 compared with EPS of $0.65 in the year-ago quarter.

Revenues rose more than 24% year-over-year in the quarter, largely the result of the acquisition of DirecTV. Operating margin was up 50 basis points to 17.6% in the quarter.

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At the end of the first quarter AT&T reported 75.8 million business wireless subscribers and 54.7 million consumer mobility subscribers. Business wireless added 133,000 postpaid subscribers in the quarter. The churn rate rose from 0.9% in the first quarter of 2015 to 1.2%. Business broadband posted a net subscriber loss of 19,000 in the quarter even though the company added 17,000 new subscribers.

The consumer mobility business added 92,000 total subscribers comprised of 500,000 prepaid subscribers, a loss of 4,000 postpaid subscribers, and a loss of 378,000 reseller subscribers. Churn rose from 1.2% to 1.24% year over year.

Video subscribers fell by 54,000 in the quarter, as AT&T added 328,000 DirecTV satellite subscribers but lost 382,000 U-verse TV subscribers. The entertainment group ended the quarter with 25.3 million video subscribers. The group had a net gain of 186,000 broadband subscribers in the quarter and now counts 12.5 million total broadband subscribers.

Wireless subscribers totaled 130 million at the end of the quarter, up by 8.7 million year-over year. Wireless revenues were down 1.3%, however, due to decreases in equipment revenue. Services revenues were flat and wireless equipment revenue was down 6.5% due to lower sales volume.

CEO Randall Stephenson said:

It was a good start to the year. We had solid financial results and executed well on our strategy to be the premier integrated communications provider for businesses and consumers. We’re seeing good momentum with our initial integrated wireless, video and broadband offers. And we’ll expand the integrated choices for customers in the fourth quarter when we launch our new video streaming services.

Our consolidated revenues, adjusted earnings and free cash flow continue to grow as margins continue to expand. And we’re putting up these numbers even as we invest in building our Mexico wireless business. In addition, DIRECTV merger synergies are on track to reach $1.5 billion or better by the end of the year.

Shares closed the regular trading session Tuesday down 0.3% at $38.09 and traded down about 1.4% at $37.55 in after-hours trading. The stock’s 52-week range is $30.97 to $39.72. Prior to today’s release Thomson/Reuters had a consensus price target of $39.36 on the company’s shares.