A Look At AT&T's Earnings

Aug.16.12 | About: AT&T Inc. (T)

Telecommunication giant AT&T Inc. (NYSE:T) recently released its second quarter results for 2012. Regarding this, the company was able to earn $0.66 on each share, which is $0.03 higher than the consensus figure that was expected, as well as 10% greater than what was obtained in the second quarter of last year in 2011. Overall, comparing both financial periods, the second quarter in 2012 has obviously presented shareholders with better results.

Highlights of the 2012 second quarter results

Now, another highlight from the recently released 2012 second quarter results includes marginally better operating revenue of $31.58 billion as against $31.50 billion of 2011, which was recorded in the second quarter of that same year; this is approximately 0.3% higher than that of 2011. Also, AT&T had a 1.3 million net gain with respect to wireless subscribers compared with that obtained in the first quarter of 2012. The figure is much higher when compared with a 6.6 million net gain over the 2011 second quarter figure of 98.6 million.

Closely related to this is a strong smartphone sale of 5.1 million units, with more than 33% of post-paid smartphone subscriptions on 4G-enabled devices, while for branded computing (tethering plans, tablets, etc.) there was 496,000 net add so that the total amount for this reached 6.3 million, representing a 50% increase over the figure obtained some 12 months prior. ARPU, which is the average monthly revenues per subscriber for the period in question equally, notched somewhat higher increasing by 1.7% to settle at $64.93.

In addition, during this quarter AT&T also reduced its total debt by as much as $1.2 billion, making a total dividend payment of $2.6 billion in the course of the quarter. Now in line with the company's repurchase authorization of 300 million shares, 75.8 million shares were bought for a total sum of $2.5 billion, this way the company will be able to return value to its shareholders through share buybacks. So far, a total of 143.5 million shares have been repurchased. Okay, another interesting highlight in this quarter was the low churn levels reached: postpaid, prepaid as well as the total churn levels got to their lowest ever. With postpaid it was 0.97% as against 1.15% a year ago, while the total churn level was 1.18%, compared with 1.43% in the second quarter of 2011. What this means is that AT&T has improved customer retention.

Key growth drivers of the positive results

It is equally interesting to note that 80% of the total revenue earned by AT&T (excluding Advertising Solutions) was driven by wireless plus wireline data/managed services. This is in line with the current trend in the telecom industry as companies are experiencing substantial growth in almost only the wireless/wireline segment of their businesses. A good example is Verizon Communications Inc. (NYSE:VZ), which has also released its second quarter 2012 result with revenue improving on the strength of its wireless/wireline service patronage.

So a breakdown of the key growth drivers as far as AT&T is concerned shows that revenues from wireless data grew by 18.8%, with the concerned revenue going up by $1 billion when compared with that obtained in the second quarter for 2011. A similar growth was equally earned regarding revenues from strategic business services with a 13.5% growth achieved, while revenues from U-verse grew by 38.3% when compared with figures from last year's second quarter.

AT&T and the future

Currently one major problem that AT&T faces is meeting up with spectrum needs as it seeks to build a LTE (Long Term Evolution) network that is capable of competing with Verizon, which is way ahead, reaching approximately 230 million people in the US. To do this AT&T announced recently that it wishes to secure spectrum licenses from Horizon Wi-com, Comcast (NASDAQ:CMCSA) as well as NextWave Wireless (OTC:WAVE). This is a good development considering its failed bid with T-Mobile in 2011. However, the company needs to look for other alternatives in order to meet the ever-increasing spectrum requirements of clients.

In conclusion

Finally, investors thinking of taking a position regarding AT&T will have to consider this stock against its strongest rival Verizon, as well as others like Sprint Nextel (NYSE:S) in the industry before going all out for it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.