AT&T reported Q2 earnings per diluted share of $0.46 on a reported basis, up 53.3 percent versus the year-earlier quarter. Before merger-related costs, earnings per diluted share were $0.58, up 34.9 percent versus comparable adjusted results in the second quarter of 2005. This marked AT&T's fifth consecutive quarter of double-digit growth in earnings per share before merger-related costs. Second-quarter net income totaled $1.8 billion on a reported basis, up 80.8 percent from the year-earlier quarter. Before merger-related costs, earnings were $2.3 billion, up 59.6 percent from pre-merger results in the second quarter of 2005. Cash from operating activities totaled $4.7 billion, up 24.1 percent versus the year-earlier second quarter.
"We delivered another strong quarter, with excellent growth in both earnings and cash flow," said Edward E. Whitacre Jr., AT&T chairman and chief executive officer. "Cingular generated solid subscriber growth and its best-ever churn. Enterprise trends continue to be encouraging. Regional wireline revenues extended their growth record. Our SBC/AT&T merger integration projects are very much on plan, generating synergies and benefiting customers.
Some highlights:
- Second-quarter consolidated revenues totaled $15.8 billion, up 53.2 percent from a pre-merger $10.3 billion in the second quarter of 2005 and up 0.1 percent sequentially. Second-quarter operating expenses totaled $13.2 billion on a reported basis, up from a pre-merger $8.8 billion in the year-earlier quarter but down 2.9 percent sequentially. Expense trends reflect early results from SBC/AT&T integration and progress in operational initiatives.
- AT&T's wireline revenues , including the combined former SBC and former AT&T wireline operations, were $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. Versus pro forma results for the second quarter of 2005, AT&T's second-quarter 2006 wireline revenues declined 5.0 percent. This compares with a 5.5 percent year-over-year pro forma decline in the first quarter of this year. More than two-thirds of AT&T's year-over-year wireline revenue decline in the second quarter came from former AT&T Corp. national mass markets -- primarily stand-alone long distance and local bundled services -- where AT&T Corp. discontinued proactive marketing in 2004. Excluding results from this customer category, wireline revenues declined 1.8 percent year over year and grew 0.7 percent sequentially.
- Regional consumer revenues were up 1.5 percent to $3.6 billion, driven by a 637,000 increase in consumer connections over the past year to
33.1 million. Consumer connections is a measure that combines retail access lines plus DSL lines and video connections. - Total DSL lines increased by 342,000 to 7.8 million -- up more than 1.8 million, or 30.3 percent, over the past year.
- AT&T | DISH Network satellite television connections increased by 42,000 to reach 533,000 in service.
- Additional lines declined by 106,000, consistent with results over the past several quarters, in large part due to the migration from dial-up Internet access to DSL. Primary consumer lines declined by 320,000, reflecting second-quarter seasonality in addition to migrations to wire�less, cable and other competitors. Primary consumer line and DSL line disconnections are both typically higher in the second quarter due to end-of-college-year moves.
- In June, the company began offering its "AT&T U-verse" services in San Antonio -- its first IPTV market. AT&T said it is pleased with initial results and expects to offer its U-verse services in 15 to 20 markets (metropolitan statistical areas) within its traditional 13-state wireline area by the end of 2006. Markets beyond San Antonio are expected to be launched late in the fourth quarter, generally following the deployment plan being used in San Antonio.
- Enterprise revenues were $4.4 billion -- essentially flat with results in the first quarter of this year, reflecting continued strong volume growth along with double-digit growth in IP data services. The second quarter's 0.3 percent sequential decline in enterprise revenues compares with a sequential decline of 3.8 percent in the first quarter of this year. Versus pro forma results for the second quarter of 2005, enterprise revenues declined 7.5 percent. Excluding revenues from a payphone unit that the former AT&T Corp. sold in June of 2005, enterprise revenues would have declined 6.9 percent.
Updated Guidance
- AT&T now expects its full-year adjusted consolidated operating income margin to be in the 17 percent to 18 percent range, up from its previous outlook of 15 percent to 16 percent.
- AT&T now expects to achieve full-year 2006 operating expense synergies from SBC/AT&T merger integration of $700 million to $900 million, up from its previous target range of $600 million to $700 million. Through the end of the second quarter, approximately $300 million of expense synergies had been realized.
- In January, pension and retiree costs were expected to dilute full-year earnings per share by $0.06 to $0.08. AT&T now expects pension and retiree costs to dilute 2006 earnings by $0.04 to $0.06.
- Project Lightspeed costs are now expected to reduce earnings per share in 2006 by $0.05 to $0.07, down from the $0.08 to $0.10 in January's outlook, reflecting timing of scaled launch occurring later in the year.
- Driven by demand for data services, capital expenditures in 2006 are expected to be at the high end or slightly above the previously outlined $8 billion to $8.5 billion -- in the low teens as a percentage of revenues. This total includes capital for merger integration projects and Project Lightspeed deployment.
- AT&T's outlook for 2006 free cash flow after dividends is now expected to be in the mid-$2 billion range, up from its January outlook of approximately $2 billion, even with the majority of AT&T/SBC merger integration costs occurring this year. (Free cash flow after dividends is cash from operations plus AT&T's proportionate share of Cingular free cash flow less capital expenditures and dividends.)
- These updated expectations do not include any expected impacts from AT&T's pending acquisition of BellSouth.
