AT&T Hits Profit Target, but Revenue Light - TheStreet

Updated from 10:49 a.m. EDT


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reported strong second-quarter growth in its wireless division, but overall revenue came up short of expectations following a weak showing by the company's wireline segment.

The U.S. phone giant said net income rose to $3.8 billion, or 63 cents a share, in the quarter, up from $2.9 billion, or 47 cents a share, in the year-ago period. Excluding noncash merger-related amortization expenses, AT&T said it had adjusted earnings of 76 cents a share, matching the Thomson Reuters average estimate of polled analysts.

Second-quarter revenue came in at $30.9 billion, up 4.7% from the year-ago quarter but shy of Wall Street's prediction of $31.1 billion.

AT&T said it had a net gain of 1.3 million wireless subscribers in the quarter, taking its total customer count to 72.9 million. That compares with 1.4 million wireless subscriber additions in the year-ago quarter. AT&T picked up 894,000 retail net postpaid customers in the second quarter, a 2% decline over last year's levels. Postpaid churn fell to 1.1%, the lowest in the company's history.

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"Our results demonstrate the great strength of AT&T's assets and our ability to execute with focus and discipline," said CEO Randall Stephenson said in a release. "Earnings growth continues to be solid, our wireless momentum is strong, our major growth and cost-reduction initiatives are on track, and we continue to return substantial value to shareowners."

"In short, AT&T has very likely cleared a relatively low bar," writes Craig Moffett, analyst with Sanford Bernstein, in an email. "Importantly, all wireless metrics were solid."

The company said it has already benefited from the July 11 introduction of


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new iPhone 3G, a product for which it is the exclusive authorized U.S. service provider. Stephenson said the customer response to the iPhone "has been everything we had anticipated and more. This strengthens our wireless business, and it reinforces our positive view of the opportunities ahead for AT&T and the industry."

On the company's conference call, AT&T CFO Rick Lindner said the initial iPhone 3G sales volume in July nearly doubled the 2007 original iPhone launch. "The response and the store traffic have been tremendous," he said. "In the first 12 days, 40% of iPhone 3G sales have been to customers new to AT&T."

As many observers predicted, AT&T saw a sharp decline in its wireline business. Total switched access lines fell 8.1% from a year ago. Operating revenue from its wireline segment slid 2.1% from a year earlier. On the positive side, AT&T said enterprise IP data revenue rose 18.3% from a year ago and 6.9% sequentially.

"True to expectations, wireline results at AT&T were weak ... and access line losses, true to form, were horrible," writes Moffett. "But cost controls in wireline were good, leaving margins much better than expected in wireline overall, and enterprise remains resilient in the face of a weakening economy."

Total broadband connections were anemic, rising by a mere 46,000. That figure is well below the 400,000 broadband adds in the year-ago period and 491,000 additions in the first quarter of 2008.

"Telco broadband -- while very soft at just 46,000 net additions, well below sell-side consensus -- was ... perhaps better than the bears had whispered, where a negative number had become the expectation," Moffett said.

Elsewhere, AT&T's U-verse service saw strong growth in the quarter, as well. Net subscriber additions totaled 170,000, up sharply from a year ago and nearly 15% sequentially. Those customer additions pushed AT&T's total U-verse subscriber count to 549,000 at the end of the quarter.

Shares of AT&T were up 4.1% to $33.11 Wednesday, although the stock is still lower by nearly 18% for the year. Telco peer


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, which reports results Monday, was adding 3.2% at $35.79.

Sprint Nextel

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was gaining 0.7% to $8.48.