Updated from 10:45 a.m. EDTDespite strong growth in wireless and wireline data services, AT&T ( T) saw its profit slip more than 9% during the first quarter, but still beat Wall Street's earnings estimate. The telecom giant, which released its results before the market opened Wednesday, reported earnings of 53 cents a share on net income of $3.1 billion, compared to 57 cents and $3.5 billion in the prior year's quarter. The company took a 5-cent hit from pension and retiree benefit costs but still came in above analysts' estimate of 48 cents. The company's earnings weren't completely out of the blue. There had been rumors that the telecom giant would report better-than-expected first-quarter results, although AT&T's revenue came in below Wall Street's estimates. The company's sales were $30.6 billion, essentially flat from $30.7 billion in the year-ago quarter, but below the $31.08 billion forecast by analysts surveyed by Thomson Reuters. Growth in wireless and wireline data services largely offset declines in wireline voice access lines and business voice revenues, according to AT&T. AT&T's wireless data revenue grew 38.6% to $3.2 billion, and sales of wireline IP data services climbed 16.4%, driven partly by the firm's U-verse Internet and TV service. The firm's wireless business was boosted by its exclusive agreement to sell Apple's ( AAPL) iPhone in the U.S., and AT&T saw more than 1.6 million iPhone 3Gs activated during the quarter. "I am particularly pleased with the success of our iPhone 3G initiative, which has driven strong high-end customer growth and delivered financial benefits ahead of our original outlook," said AT&T CEO Randall Stephenson in a statement. "Business and consumer expectations for mobility are on the rise, wireless innovation is flourishing, and the opportunities ahead are substantial."
Initial investor reaction to the results was positive and AT&T's shares climbed 3.6% to $26.18 in recent trading. "These results demonstrate focused and disciplined execution as we work through a tough economy," added Stephenson. "Our cost-improvement initiatives are on track, earnings and cash flow were solid, our balance sheet and credit metrics continue to be strong." The Dallas, Texas-based firm is seen as a key indicator for the health of the telecom sector, and has previously promised low-single digit revenue growth through 2009. Apple's iPhone continues to be the jewel in AT&T's wireless crown, according to executives on a conference call to discuss the company's first-quarter results. AT&T CFO Rick Lindner explained that the company has now activated more than 6 million iPhone 3Gs since the device's launch last year. "Wireless data growth continues to be robust driven by data-capable devices," he said, adding that a slew of new wireless applications has also helped boost AT&T's revenue. "I think that having more than 1.6 million iPhone sales in the
first quarter, in this environment, was very strong," Lindner said. In previous quarters, AT&T's profit has taken a hit from its Apple iPhone subsidy program, although Lindner says that its wireless margins are now improving. "That was a pleasant surprise to us, wireless margins were up above 40% in the first quarter," he said, in response to an analyst's question. "We would expect to maintain margins in the low 40s as we move forward this year." AT&T, which competes with Verizon ( VZ), Sprint Nextel ( S) and Qwest Communications ( Q), did not offer specific guidance for its second quarter.