Why Is AT&T (T) Up 4.7% Since the Last Earnings Report? – August 29, 2017

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It has been about a month since the last earnings report for AT&T Inc. (T Free Report) . Shares have added about 4.7% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AT&T Beats Q2 Earnings & Revenue Estimates, Results Impress

Net Income

On a GAAP basis, AT&T’s second-qaurter 2017 net income of $4,014 million or $0.79 per share compared with $3,515 million or $0.72, from the year-ago quarter. Quarterly adjusted (excluding non-recurring items) earnings per share came in at $0.79, outshining the Zacks Consensus Estimate of $0.74. The bottom line grew 9.72% on a year-over-year basis.

Revenue

Quarterly total revenue dropped 1.68% year over year to $39,837 million, primarily due to declines in legacy wireline services and consumer mobility. However, the revenue estimate was above the Zacks Consensus Estimate of $39,799 million. Of this, Service revenues were $36,538 million, down 1.63%. Equipment revenues were $3,299 million, down 2.34%.

Operating Metrics

Total operating expenses in the second-quarter 2017 were $32,514 million versus $33,960 million. Operating income was $7,323 million versus $6,560 million in the year-ago quarter. Operating income margin was 18.4% versus 16.2% from the prior-year quarter.

Cash Flow

In the second quarter of 2017, AT&T generated $8,942 million of cash from operations compared with $10,307 million from the prior-year quarter. Free cash flow in the reported quarter was $3,734 million compared with $4,837 million a year ago.

Liquidity

At the end of the second quarter of 2017, AT&T had $25,617 million of cash and cash equivalents versus $7,208 million at the end of Jun 2016 and $5,788 million at the end of Dec 2016. The company had $132,824 million of total debt outstanding compared with $113,681 million at the end of 2016.

Business Solutions Segment

Total revenue at the segment was $17,107 million, down 2.68% year over year. Of this, Wireless service revenues totaled $8,006 million, inching up 0.54% year over year while Wireless Equipment revenues totaled $1,721 million, down 3.04%. Fixed strategic services revenues reached $3,028 million, up 7.95%. Legacy voice and data services contributed $3,508 million, down 15.7%. Other service & equipment generated $844 million, down 3.43%.

Operating income was $4,459 million, versus $4,201 million in the year-ago quarter. However, operating margin was 26.1% compared with 23.9% in the prior-year quarter.

As of Jun 30, 2017, the Business Solutions wireless subscriber base was 84.794 million, up 9.35% year over year, wherein, Postpaid wireless subscriber count was 51.111 million and Connected Devices were 33.611 million. In the reported quarter, this segment gained net 36,000 postpaid wireless customers and 2.170 million connected devices. Business wireless postpaid churn rate was 0.97% compared with 0.91% in the year-ago quarter. Total wireline broadband connections were 1.384 million, down 5.2% year over year. IP-broadband was pegged at 992,000.

Entertainment Group Segment 

Total revenue at the segment grossed $12,682 million, declining 0.23% year over year (post the DIRECTV acquisition). Of the total, video entertainment revenues were $9,153 million, up 2.12%. High-Speed Internet revenues were $1,927 million, up 3.21%. Legacy voice and data services contributed $1,005 million, down 19.2%. Equipment and Other service generated $597 million, down 6.28%.

Operating income was $1,666 million in the reported quarter compared with $1,653 million in the prior-year quarter. Operating margin was 13.1%, compared with 13.0% a year ago.

As of Jun 30, total video connections in this segment were 25.172 million, down 0.48%. Of the total, Satellite connections tallied 20.856 million, up 1.97%. U-verse connections were 3.825 million, down 20.98%. DIRECTV NOW connections were 0.491 million. In the reported quarter, AT&T lost 195,000 U-verse customers and 156,000 satellite TV customers and gained 152,000 DIRECTV NOW connections. Total broadband connections at this segment were 14.302 million, up 0.85% year over year.  Of the total, IP-broadband was pegged at 13.242 million, while DSL-broadband was 1.060 million. Total wireline voice connections were 10.696 million, down 9.47%.

Consumer Mobility Segment

Total revenue at the segment was $7,791 million, down 4.82% year over year. Of the total, Service revenues were $6,528 million, down 6.0%. Equipment revenues generated $1,263 million, down 2.01%.

Operating income was $2,400 million, down 6.76%. Operating margin was 30.8% compared with 31.4% in the prior-year quarter.

As of Jun 30, the Consumer Mobility wireless subscriber base was 51.706 million, down 4.7%. Of this, postpaid wireless subscribers totaled 26.290 million and prepaid wireless customers were 14.187 million. Reseller and Connected Devices subscriber base totaled 11.229 million and Branded connections count was 40.477 million. In the reported quarter, this segment gained a net of 267,000 prepaid customers, 91,000 postpaid wireless customers andt lost a net of 277,000 resellers and connected devices subscribers. Consumer Mobility postpaid churn rate was 1.09%, flat year-over-year. Total churn rate for the segment was 2.15%, up from 1.96% in the year-ago quarter.

International Segment

Total revenue at the segment was $2,026 million, up 10.8% year over year. Video entertainment revenues were $1,361 million, up 11.4%. Wireless service revenues were $535 million, up 9.4%. Wireless Equipment revenues were $130 million, up 11.11%.

Operating income was $100 million compared with $184 million in the year-ago quarter.

The International wireless subscriber base was 13.082 million, up 31.4% year over year. In the reported quarter, this segment gained a net of 476,000 wireless customers. The International video subscriber base touched 13.622 million, up 8.78% year over year. However, the company lost 56,000 International video customers in the reported quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

VGM Scores

At this time, the stock has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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