Bloomberg News

AT&T Tops Profit Estimates After Paying Fewer Subsidies

July 24, 2012

AT&T Profit Tops Estimates as Company Doles Out Fewer Subsidies

AT&T added 320,000 monthly contract customers, a smaller number than a year earlier. Photographer: Stephen Yang/Bloomberg

AT&T Inc. (T:US), the largest U.S. phone company, posted second-quarter profit that beat analysts’ estimates after paying less money in subsidies to get wireless customers to buy new smartphones.

Net income attributable to AT&T climbed 8.7 percent to $3.9 billion, or 66 cents a share, from $3.59 billion, or 60 cents, a year earlier, Dallas-based AT&T said today in a statement. Analysts projected 63 cents a share on average, according to data compiled by Bloomberg. Sales rose less than 1 percent to $31.6 billion, compared with an estimate of $31.7 billion.

AT&T added 320,000 monthly contract customers, a smaller number than a year earlier. While the decline is bad for sales growth, it means the company doled out fewer dollars in subsidies -- the payments that make it easier for customers to afford the latest phones. The lack of a new iPhone from Apple Inc. (AAPL:US) contributed to the lull in subsidy payments, said Joe Bonner, an analyst with Argus Research in New York.

“It’s all related to the iPhone cycle,” said Bonner, who has a hold rating (T:US) on AT&T shares. “Margins go up without the iPhone, and they go down when they have to pay Apple all those subsidies.”

AT&T shares (T:US) were little changed, trading at $35.27 at 9:51 a.m. in New York. The stock had climbed 17 percent this year.

New Subscribers

Analysts had estimated 236,182 new subscribers, according to a Bloomberg survey of 11 analysts. The contract-customer gains lagged behind the 888,000 at Verizon Wireless, AT&T’s biggest rival. While AT&T leads in total phone revenue, Verizon has more wireless customers.

AT&T activated 3.7 million iPhones, compared with the 4.3 million sold in the first quarter. The company also sold 219,000 tablets, a drop from the 240,000 tablets sold in the first quarter.

Offering smartphones, including the iPhone, takes a toll on carriers’ profit margins because they typically sell the phones at a loss to lure subscribers into two-year contracts. Users of the iPhone and other smartphones are lucrative in the long run because they spend money more each month to browse the Web, send e-mail and watch videos.

Wider Margins

Wireless margins widened to 45 percent. That was up from first-quarter margin of 41.6 percent and topped the 42.2 percent estimate average based on a Bloomberg survey.

AT&T also saw a 1.7 percent rise in the size of wireless bills, lifted by more people buying data plans. The average revenue per monthly subscriber increased to $64.93. The average estimate was $65.04, according to the Bloomberg survey.

Sales from AT&T’s land-line business fell 0.8 percent to $14.9 billion. The carrier lost 96,000 Internet customers, which AT&T blamed on seasonal trends. AT&T added 155,000 U-verse television subscribers, compared with the 200,000 in the first quarter.

AT&T’s second-quarter capital spending (T:US) totaled $4.48 billion, down 15 percent from $5.27 billion a year earlier. The company is cutting costs by jettisoning slower-growth businesses. That includes selling its Yellow Pages directory unit to Cerberus Capital Management LP in May for $950 million.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • T
    (AT&T Inc)
    • $35.47 USD
    • 0.31
    • 0.87%
  • AAPL
    (Apple Inc)
    • $100.96 USD
    • -0.83
    • -0.82%
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