AT&T (NYSE:T) is a provider of telecommunications services in the U.S. and worldwide. The company reported earnings after the market closed on 28 Jan 14, and on the surface everything looked good, with the company reporting fourth quarter earnings of $1.31 per share (excluding significant items, EPS was $0.53 versus $0.44) on revenue of $33.16 billion (beating analysts' estimates by $100 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.
Segment Income (millions)
Compared to last year, total revenue has increased by 2% for the fourth quarter. The only real notable thing about this portion of the earnings report is that Wireless increased revenues by 5% and accounts for roughly 56% of the company's revenues. The 23% decrease in Other revenue is immaterial as it only accounts for 0.03% of revenues.
Cost of services and sales (exclusive of depreciation and amortization shown separately below)
Selling, general and administrative
Depreciation and amortization
Total Operating Expenses
Operating Income (Loss)
Equity in Net Income of Affiliates
Other Income (Expense) - Net
Income (Loss) Before Income Taxes
Income Tax Expense (Benefit)
Net Income (Loss)
Less: Net Income Attributable to Noncontrolling Interest
Net Income (Loss) Attributable to AT&T
Basic Shares Outstanding
Diluted Shares Outstanding
Basic earnings per share
Diluted earnings per share
On the income statement, everything seems excellent to me with revenues increasing 2% year-over-year while operating expenses decreased 46% due to a 30% drop-off in cost of services and a 76% drop-off in selling, general and administrative expenses. Interest expenses increased 78% while equity in net income of affiliates decreased 31% and other income increased 1783%! On an absolute basis, income before taxes increased 270%! Income taxes went from being a benefit to being an expense within the past year and net income increased an absolute value of 285%! Basic and diluted shares have decreased 7% in the past year, which helped earnings increase 293% including significant items.
Cash and cash equivalents
Accounts receivable - net of allowances for doubtful accounts of $483 and $547
Deferred income taxes
Other current assets
Total current assets
Property, Plant and Equipment - Net
Customer Lists and Relationships - Net
Other Intangible Assets - Net
Investments in and Advances to Equity Affiliates
Debt maturing within one year
Accounts payable and accrued liabilities
Advanced billing and customer deposits
Total current liabilities
Long term debt
Deferred income taxes
Postemployment benefit obligation
Other noncurrent liabilities
Total deferred credits and other noncurrent liabilities
Additional paid-in capital
Accumulated other comprehensive income
Total Stockholders' equity
Total Liabilities and Stockholders' Equity
The first thing I notice on the balance sheet is that cash has decreased 31%, which is something I don't like to see. Deferred income tax has increased 16% and other current assets have increased 54%, helping overall current assets increase 2% year-to-year. Customer lists and relationships have decreased 45% and investments in and advances to equity affiliates have decreased 16% while other assets have increased 23% to allow all total assets to increase 2%. On the liability side of things, debt maturing within one year has increased 58% and accrued taxes have increased 73% causing total current liabilities to increase by an astounding 10%. Deferred credits and other noncurrent liabilities have increased 1%, due in large part to a 27% increase in deferred income taxes and a 36% increase in other noncurrent liabilities. Postemployment benefit obligations have decreased 28%, which is a good thing. Retained earnings and treasury stock have increased 39% while accumulated other comprehensive income increased 50% and noncontrolling interest increased 48%. Total stockholder equity decreased 1% and total liabilities have increased 2%.
The company reported earnings which were 20.5% higher than a year before on 2% more revenue, while the share price was down 0.94% in the past year excluding dividends. The share count has decreased 7% for the entire year. I definitely love that both earnings per share and revenue were up year-over-year. Earnings increased via financial engineering methods, reduced cost of services and reduced SG&A expenses. On a fundamental basis, this company is inexpensively valued with respect to 2014 earnings. The company added more subscribers than expected. The stock was down 2.05% in the after-hours session on the day of reporting, I believe because it announced it will be spending about $21 billion in capital expenses for this year, which is the same amount of what it spent in 2013. This didn't seem to be a bad quarter to me and the stock seems interesting again at these levels, but keep in mind it's not a high-flier.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade, and happy investing!
Disclosure: I am long T. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.