AT&T: We've Got Cash

Solid numbers from AT&T Inc. (NYSE: T) indicate the company may be in a position to increase capital spending, as it beat earnings estimates, boosted its profit and cash-flow forecast for the year, and said it would spend as much as $10 billion in a stock buyback.

Shares edged up in pre-market trading, last quoted up $0.65 (2.34%) at $28.43.

AT&T's Cingular wireless division and broadband efforts continue to see solid growth, while wireline revenues were relatively flat. The company also appears to be seeing more profit benefit from cost-cutting associated with the integration with SBC Communications.

The global carrier, which merged with SBC last November and also plans to absorb BellSouth Corp. (NYSE: BLS), reported $0.58 in earnings per diluted share before special charges, up 34.9 percent versus comparable results in the second quarter of 2005. Analysts had been expecting $0.53 in earnings, according to Reuters Research .

Including merger-related costs, the company reported second-quarter net income of $1.8 billion, or $0.46 per share.

The better-than-expected results led AT&T to increase estimates for profits, sales, and capital spending for 2006. It also intends to buy back $10 billion of its common stock.

The company boosted its outlook for 2006 free cash flow after dividends, saying it will be in the mid-$2 billion range, up from its January outlook of approximately $2 billion.

That means the company could have more money to invest in new services. AT&T said capital expenditures in 2006 are expected to be at the "high end or slightly above" the previously outlined $8 billion to $8.5 billion, including capital for "major integration projects" and Project Lightspeed deployment.

Most of AT&T's profit and revenue growth appears to be coming from its wireless and broadband efforts. Wireline networking remains relatively flat.

The wireline segment, which includes SBC, reported revenues of $14.8 billion, up 59.3 percent versus a pre-merger $9.3 billion reported in the second quarter of 2005 and up 0.1 percent from results in the first quarter of this year.

AT&T's second-quarter 2006 wireline revenues declined 5.0 percent compared with pro forma results from the comparable quarter in 2005. The company said this decline occurred because it has stopped marketing standalone long distance and local bundled services. Excluding this category, wireline revenues declined 1.8 percent year over year and grew 0.7 percent sequentially.

Broadband growth remained strong. AT&T reported that DSL lines increased by 342,000 to 7.8 million -- up more than 1.8 million, or 30.3 percent, over the past year.

The wireless results included higher revenues from data products, good subscriber growth, and lower churn.

Cingular posted a net subscriber gain of 1.5 million and ended the quarter with 57.3 million subscribers, an increase of 5.9 million over the past four quarters. Net postpaid subscriber additions in the second quarter totaled more than 1 million.

Average monthly churn was 1.7 percent overall, down 50 basis points percent versus the year-earlier second quarter and down 20 basis points percent sequentially.

Cingular's total revenues grew to $9.2 billion, up 7.1 percent versus the year-earlier second quarter and up 2.7 percent from the first quarter this year. The company said this was driven by data revenues, which increased 51.2 percent year over year and 13.3 percent sequentially. Cingular's data ARPU (average revenue per user) was $5.77 in the second quarter, up 38.7 percent versus the year-earlier second quarter and up 10.5 percent sequentially.

Overall, Cingular reported $1.0 billion in operating income for the second quarter of 2006, up from $504 million in the year-earlier second quarter and $807 million in the first quarter of 2006. Operating income before merger-related costs was $1.5 billion, up from $1.2 billion in the year-ago second quarter and $1.4 billion in the first quarter of 2006.

— R. Scott Raynovich, Editor in Chief, Light Reading

ozip 12/5/2012 | 3:47:32 AM
re: AT&T: We've Got Cash Lets spend even though we are far from completing our company integration, we have yet to integrate Bell South and we do not yet know how successful our defense will be against the cable providers in the consumer business.


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