Hitting the Numbers to a T

Updated from 12:35 p.m. EDT on April 21.

AT&T (T - commentary - Cramer's Take) reported very solid first-quarter 2008 results. Almost every key metric matched analyst estimates with the exception of wireline loss, which continues to accelerate. Guidance was restated, and the numbers suggest that the company will have little trouble meeting 2008 estimates for EPS, revenue, free cash flow and subscriber growth. Most importantly, there was no indication that the economy is taking an accelerating toll on AT&T's business. Challenges on that front remain and competition across all business lines is intense, but the shares remain attractive as a defensive investment with offensive characteristics. I think in a decent market the shares can trade back in the $40s over the next couple of months.

The highlight of the quarter was wireless. Service revenue grew 17%, and margins expanded a better-than-expected 280 basis points. Gross and net adds met expectations, and data revenue continued to ramp, up 57%. Churn remained stable with slight improvement in prepaid. On the call, management noted that consumers with integrated devices (smart phones) had average revenue per unit more than twice the corporate average. Average revenue per unit continued to grow in first quarter, up 5%, to over $50. Wireless represented 40% of total revenue, so the impact of double-digit growth is increasingly important and helpful for AT&T to drive mid-single-digit or better total corporate revenue growth.

The other highlight was enterprise, which returned to positive revenue growth driven by data applications. Management said it had seen little impact from the economy so far and did not take the bait in questioning to discuss trends in financial services.

The consumer business continues to be pressured by falling access lines (count me for eliminating two in the first quarter). Access line loss accelerated to 7.7%, worse than analyst estimates. U-Verse continues to ramp with more subscribers added this quarter on a sequential basis. Management indicated that they were having some success selling wireless/TV bundles. Margin expansion, thanks to merger synergies, continues to provide growth for this business on the operating income line. The company announced another round of job cuts last week, which should extend the margin story into 2009.

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At the time of publication, Birenberg was long Apple, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.