NEW YORK -(Dow Jones)- AT&T nearly doubled its first-quarter net profit and revenue after absorbing and wringing out costs from peer BellSouth.
At least for the near term, the San Antonio company's strategy of acquiring assets in a bid to form a telecommunications giant is paying off through a combination of merger cost reductions and full control of the nation's largest wireless business. Much of the growth this quarter came from merger cost cuts.
"Overall, this is an encouraging progress," said Todd Rosenbluth, an analyst at Standard & Poor's. "The integration of the merger seems to be moving forward faster than the company expected."
AT&T generated $900 million in cost savings in the first quarter. The company previously said it expects to record merger savings of $2 billion to $2.4 billion for the year.
Over the past two years, AT&T - previously known as SBC Communications - has been on a torrid acquisition spree in purchasing the original AT&T, BellSouth and AT&T Wireless. Earlier this month, it pulled its offer to acquire a stake in Telecom Italia as a result of political pressure.
AT&T reported first-quarter net income of $2.85 billion, or nearly double the $1.45 billion posted a year ago. Year-earlier results don't include contribution from BellSouth and its 40% stake in Cingular Wireless.
Excluding one-time items such as a gain from a wireless spectrum swap with Deutsche Telekom's T-Mobile USA and $2 billion in integration and amortization costs, the company posted earnings of 65 cents a share, topping Wall Street's average estimate by 4 cents a share.
Revenue, meanwhile, was slightly lighter than analysts had expected at just under $29 billion. Wall Street was looking for revenue of $29.5 billion.
The company posted first-quarter operating income margin of 23.7%, up from 17.3% a year ago. It also boosted its full-year adjusted operating income margin estimated range to between 23% and 24%. The prior estimate was 21% to 23%.
AT&T's primary reason for acquiring BellSouth was to take full control of Cingular, the No. 1 wireless carrier by subscriber base. The unit didn't disappoint, posting revenue of $10 billion as data services bolstered the average revenue per user. Bank of America analyst David Barden forecast $9.93 billion in revenue.
The unit also added 1.2 million subscribers in the period, or half the amount added during the fourth quarter. The rate of turnover fell to 1.7%, or 10 basis points better than the fourth quarter.
"I'm most encouraged by the wireless business," Rosenbluth said. "Through churn reduction, the (earnings before interest, taxes, depreciation and amortization) margin has progressed nicely as we entered 2007. They seem further along than we expected."
AT&T's wireline business generated $18 billion in revenue. The company, like much of the phone industry, is suffering from a deteriorating fixed-line business as customers drop their service in favor of a wireless or Internet-based alternative. AT&T lost 285,000 lines in the quarter, compared with 251,000 from a year ago and 331,000 in the fourth quarter.
The company hopes to offset those declines by introducing new services such as television and bundling existing services such as long distance and high-speed Internet. It added 691,000 net new digital subscriber line customers and 187,000 TV customers. Its U-Verse Internet TV service added 10,000 customers in the period after a bumpy start.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; email@example.com
(END) Dow Jones Newswires"
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