AT&T Beats Targets

The company's first quarter as a merged operation is solid.
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AT&T

(T) - Get Report

beat earnings estimates in its first quarter following the $16 billion merger that created the biggest U.S. telco.

The San Antonio, Texas, company, which was known as SBC until it bought the New Jersey long-distance outfit known as AT&T on Nov. 18, said it benefited from strong gains at its 60%-owned Cingular Wireless unit and expansion on the digital subscriber line, or DSL, broadband Internet side.

For the fourth quarter ended Dec. 31, AT&T made $1.66 billion, or 46 cents a share, up from the year-ago $688 million, or 21 cents a share. Revenue rose 26% from a year ago to $12.97 billion. Excluding merger-related charges, latest-quarter earnings were 48 cents a share, beating the Thomson First Call analyst consensus estimate by 4 cents.

"The new AT&T has gotten off to a very strong start," said CEO Edward E. Whitacre Jr. "We continue to execute well across our operations, and we have moved quickly on merger integration. The assets we acquired are in excellent shape, we did a thorough job of merger planning, we have retained key talent, and customer response to the new AT&T has been very positive."

The company said it posted its seventh consecutive quarter of wireline revenue growth, with consumer revenue up 4.6% and business revenue up 1.9%. DSL/Internet revenue rose 21% from a year ago, while DSL lines in service rose by 425,000 to 6.9 million. The company said it threw off $4.59 billion in cash from operations in the fourth quarter and bought back $1.1 billion in stock.

Wireline segment revenue, made up of former SBC wireline results, totaled $9.43 billion in the fourth quarter, up 1.3% from the fourth quarter of 2004. Wireline consumer revenue grew 4.6%, and business revenue increased 1.9%.

AT&T's fourth-quarter 2005 wireline operating income margin was 5.1% on a reported basis and 13.5%, excluding severance and merger-related costs. This marks a substantial improvement versus the fourth quarter of 2004, when the company's wireline operating income margin was 6.9% on a reported basis and 9.5% before force-reduction and pension charges.

Wireline retail business lines declined by 54,000 in the fourth quarter of 2005, compared with a decline of 74,000 in the year-earlier quarter. Consumer retail primary lines declined by 129,000 versus 73,000 in the fourth quarter of 2004. Additional lines declined by 99,000 versus a decline of 119,000 in the year-earlier quarter. Total switched wholesale lines declined by 490,000 versus a decline of 302,000 in the fourth quarter of 2004. Wireline operations ended the year with 49.4 million switched access lines in service.

For the full quarter, AT&T Corp. pro forma business revenue declined 8.3%, reflecting continued pricing pressures in traditional voice and data products, offset in part by growth in IP-based products and e-services. Fourth-quarter 2004 business revenue included a gain of $97 million from a reciprocal compensation settlement. Excluding this gain, AT&T Corp. fourth-quarter business revenue would have declined 6.7%. Also, AT&T sold its pay phone business in the second quarter of 2005; excluding revenue from that unit, fourth-quarter business revenue would have declined 5.9%.

For the full quarter, pro forma consumer revenue declined 24.9%, in line with results in recent quarters, reflecting industry trends and the company's decision to shift its emphasis to other segments of the business. Total AT&T Corp. pro forma revenue for the full quarter declined 12.4% versus the fourth quarter of 2004.