AT&T reported a double-digit increase in third-quarter revenues and profit, boosted by the first full quarter including Time Warner. The acquisition helped offset continued losses in pay-TV subscribers and lower service revenues in the mobile and fixed businesses. The US operator maintained its outlook for growth in full-year adjusted earnings and cash flow and said it's making progress with debt reduction.
Quarterly revenues rose 15.3 percent to USD 45.7 billion, and excluding the impact of accounting changes, increased 17.5 percent to USD 46.6 billion, due to the Time Warner acquisition. Declines in domestic video, legacy wireline services and the Latin American pay-TV business Vrio were offset by growth in wireless equipment and services, WarnerMedia and the new ad business Xandr.
Operating profit was up 25.2 percent to USD 7.3 billion, and the margin improved to 15.9 percent from 14.6 percent a year ago. On a pro forma basis, adjusted EBITDA rose 4.4 percent to USD 15.9 billion.
Net profit increased to USD 4.7 billion, or USD 0.65 per diluted share, from USD 3.0 billion or 49 cents a share. Excluding USD 0.25 of costs for amortization, merger- and integration-related expenses and other items, EPS rose 21.6 percent to USD 0.90. AT&T said it expects full-year adjusted EPS to be at the high end of its USD 3.50 range.
AT&T increased capital expenditure to USD 5.9 billion in the quarter and said it was on track to spend around USD 22 billion in the full year. Subtracting that from operating cash flow of USD 12.3 billion in the quarter, the company was left with free cash flow of USD 6.5 billion. For the full year 2018, AT&T said free cash flow should be near the high end of the USD 22 billion forecast.
The company said it's successfully managing near-term maturities and refinancing risk and expects to have retired or refinanced about USD 28 billion of near-to-intermediate term debt by the end of 2018. The aim is to reduce net debt to around 2.5x EBITDA by the end of 2019, driven by free cash flow growth. AT&T said it's also considering asset sales and capital markets options for reducing debt.
Postpaid subscribers declining, ARPU up slightly
AT&T noted that mobility remains its biggest earnings contributor. However, the quarterly results showed a 3.4 percent fall in wireless service revenues and a net loss of 232,000 postpaid subscribers. Total revenues were still up 3.3 percent to USD 17.9 billion, as a 36.4 percent increase in equipment sales helped offset the impact of accounting changes and customer migrations to no-overage plans on service revenues. The EBITDA margin was up slightly compared
to the third quarter of 2017 at 42.8 percent, versus 40.3 percent on a comparable basis.
The postpaid losses were again blamed on fewer tablet customers, while postpaid phone additions totaled 69,000. Total postpaid ARPU was up slightly from the previous quarter to USD 49.95. The company also added 570,000 prepaid subscribers in the quarter, which included 481,000 phone subscribers, and 3.5 million more connected devices, while losing 434,000 lines at resellers.
Fewer broadband, TV subscribers
The fixed-line division also showed customer losses in satellite TV and broadband. The loss of 359,000 DirecTV satellite customers in the quarter was offset slightly by 13,000 new IPTV customers and 49,000 net additions for DirecTV Now. AT&T said that WatchTV, the newest video product, also added subscribers in the quarter, but did not give exact numbers.
Despite the continued expansion of the FTTP network, reaching over 10 million premises, DSL losses of 45,000 subscribers offset net additions of 31,000 IP broadband customers. The group ended the period with a total 14.4 million broadband subscribers, with just over 700,000 remaining on DSL. Voice connections were down by over 1.4 million year-on-year to 8.9 million.
Total revenues for the Entertainment Group, including TV and residential wireline, fell 7.0 percent year-on-year to USD 11.6 billion, while the EBITDA margin improved to 21.0 percent from 18.7 percent on a comparative basis, driven by cost efficiencies.
WarnerMedia continued revenues of USD 8.2 billion, up 6.5 percent year over year thanks to higher subscription revenues at Turner and HBO and higher television licensing revenues at Warner Bros. Operating costs rose 5.4 percent, due to higher TV production costs at Warner Bros and the consolidation of Otter Media. Operating profit still rose 9.1 percent to USD 2.6 billion, after strong gains at Turner and HBO.
