Tags: at&T | profit | earnings | customers

AT&T Beats Profit Estimates as Promotions Win Over Customers

Wednesday, 28 January 2015 09:46 AM

AT&T Inc., the second-largest U.S. wireless carrier, topped profit and sales estimates as more customers than analysts expected were lured in by the company’s phone and tablet promotions.

Fourth-quarter earnings, excluding some items, were 55 cents a share, beating the 54-cent average of analysts’ estimates. Revenue rose to $34.4 billion, compared with analysts’ average projection for $34.2 billion.

Facing heightened competition from T-Mobile US Inc. and Sprint Corp., AT&T has cut prices on shared-data plans in a battle to keep customers. While the promotions have helped attract subscribers, the skirmishes have put pressure on the profits of all four major U.S. carriers. AT&T has turned its attention to expanding beyond the highly competitive U.S. market, announcing its third deal this week that gives it assets in Mexico.

“AT&T, to their credit, more than a year ago became more aggressive at repricing, so a beat might show they have reached some price stabilization,” Colby Synesael, an analyst with Cowen & Co. who recommends holding AT&T shares, said in an interview before the earnings release.

AT&T rose as much as 2.6 percent to $33.66 in extended trading. The shares dropped 4.5 percent last year.

The price cuts and promotions on tablets and popular phones like Apple Inc.’s latest iPhones helped AT&T add 854,000 monthly subscribers. Analysts expected 819,000, according to an average of seven estimates collected by Bloomberg.

Without tablets, AT&T actually lost about 100,000 monthly phone subscribers, Chief Financial Officer John Stephens said in a phone interview. A surge in smartphone converts wasn’t enough to make up for an exodus of older mobile-phone users. The company added 969,000 net monthly tablet customers.

Sacrificing Margins

The efforts to lure more customers came at the expense of the company’s margins. Profit margins on wireless service excluding interest, taxes, depreciation and amortization, came in at 36.7 percent, narrower than 42 percent a year ago. Analysts projected a margin of 38.6 percent, based on seven estimates from a Bloomberg survey.

For 2015, AT&T said adjusted earnings will grow in the “low single-digit range” as margins expand. Analysts were estimating that profit will increase about 2 percent to $2.56 a share this year. The company plans to give a more detailed forecast after the closing of pending acquisitions, particularly its purchase of DirecTV.

AT&T CFO Stephens warned in December that price competition had put pressure on AT&T’s margins and increased the rate of customers leaving in the fourth quarter.

The rate of monthly subscriber defections, known as churn, was 1.22 percent, compared with 0.99 percent in the third quarter.

Mexico Expansion

AT&T has been working to find growth beyond its slowing U.S. operations. The Dallas-based company is awaiting a regulatory decision on its proposed $48.5 billion purchase of satellite-TV provider DirecTV. In the earnings statement Tuesday, AT&T said the DirecTV deal will lead to higher synergies than originally expected, without providing specifics.

On Monday, AT&T announced a $1.88 billion acquisition of NII Holdings Inc.’s Nextel Mexico unit. The deal includes about 3 million subscribers, radio wave spectrum and network towers. Earlier this month, AT&T completed the takeover of Grupo Iusacell SA for $2.5 billion as it plans a cross-border wireless service between Mexico and the U.S.

When asked if he was done buying in Mexico, AT&T Chief Executive Officer Randall Stephenson said the company has assets now that are “far more than sufficient” and it can operate without acquiring anything from America Movil SAB.

Carlos Slim’s America Movil has been pursuing a breakup in Mexico for six months to adhere to new regulations. Slim’s company has recently been adjusting its breakup plan to make its assets more attractive to potential suitors, including AT&T, people with knowledge of the matter said earlier this month. America Movil now plans to offer specific segments of customers to buyers, instead of splitting the assets into geographic regions, said the people.

America Movil’s situation is too uncertain right now, Stephenson said on AT&T’s earnings conference call.

AT&T reported a fourth-quarter net loss of almost $4 billion, or 77 cents a share, compared with net income of $6.9 billion, or $1.31, a year ago. The company was dragged to a loss, in part, because of the $10 billion in charges for changes to its pension and retiree benefit plans and a writedown of landline assets that it disclosed earlier this month.

Even as efforts to expand in Mexico and bid billions of dollars for spectrum in a U.S. auction stretch AT&T’s finances, executives still expressed commitment to its dividend, calling it a “very important aspect” of the company.

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AT T Inc., the second-largest U.S. wireless carrier, topped profit and sales estimates as more customers than analysts expected were lured in by the company's phone and tablet promotions. Fourth-quarter earnings, excluding some items, were 55 cents a share, beating the...
at&T, profit, earnings, customers
Wednesday, 28 January 2015 09:46 AM
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