AT&T/profit doubles, wireless growth lags

Posted by Draving on 04/24/07 in Crazy News

NEW YORK (Reuters) - AT&T Inc.’s first quarter profit doubled and beat analyst estimates, helped by the purchase late last year of BellSouth Corp., but its shares fell 2 percent as revenue and wireless growth were weaker than expected.

Even though AT&T raised its 2007 profit margin target, some analysts said they were disappointed with its wireless customer growth, its revenue and a worse-than-expected decline in its fixed-line business in the quarter.

"The customer numbers on both wireless and wireline were disappointing but the wireless profit margins were solid and total (earnings per share) did beat our estimate," said SurTerre Research analyst Todd Rethemeier, who has a small holding of AT&T shares.

AT&T’s first-quarter profit rose to $2.8 billion, or 45 cents a share, from $1.4 billion, or 37 cents a share, in the year-ago quarter, before it bought BellSouth.

Adjusted earnings per share, before merger costs and other items, were 65 cents compared with analyst estimates for 61 cents a share according to Reuters Estimates.

Operating revenue rose to $28.97 billion from $15.76 billion, before the company owned BellSouth. Before a merger related accounting item, revenue was $29.4 billion, compared with average analyst estimates for $29.5 billion.

The company’s shares fell 73 cents to $39.03 in morning trade on the New York Stock Exchange.

"The market’s looking at the revenue number thinking it’s a little light," said Atlantic Equity analyst Chris Watts.

AT&T raised its estimate for full-year adjusted operating income margin to a range of 23 percent to 24 percent, up from a 21 percent to 23 percent target announced in January.

WIRELESS DISAPPOINTMENT

The wireless unit — which is scrapping the Cingular Wireless name for the AT&T brand — added 1.2 million subscribers in the quarter, compared with the average estimate for 1.5 million from six analysts contacted by Reuters.

One analyst said AT&T likely lost market share to rivals.

"They are almost certainly losing market share to Verizon Wireless," said Stifel Nicolaus analyst Chris King, referring to AT&T’s biggest wireless rival, a venture of Verizon Communications and Vodafone Group Plc .

King noted that AT&T’s 37.5 percent wireless profit margin, excluding certain items, beat his 36.3 percent estimate but attributed that to a reduction in expenses related to the company’s slower-than-expected customer growth.

As AT&T is the first of the major U.S. telecom providers to report this quarter, Rethemeier said it was not clear if the lower wireless growth could reflect an industry wide trend.

Rethemeier estimated that AT&T’s total wired phone lines fell 6.6 percent, compared with his estimate of 6.2 percent.

AT&T said its wireless average monthly revenue per user rose 1.4 percent to $49.21 from the year ago quarter, helped by a 51 percent increase in revenue from data services such as text messaging to an average of $7.88 per user

Its wireless customer cancellation rate, or churn, was 1.7 percent, down from 1.9 percent in the year ago quarter and 1.8 percent in the fourth quarter of 2006.

The company, which is developing video services to compete better with cable rivals, added 187,000 video customers in the first quarter, up from 111,000 net additions in the preceding quarter. It ended the quarter with 1.7 million video connections.

AT&T plans to complete its $10 billion share repurchase plan in the third quarter this year, subject to market conditions.

The company’s shares have risen about 11 percent since the deal BellSouth deal compared with a roughly 5 percent increase in the S&P 500 Index.

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