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AT&T's (T) CEO Randall Stephenson on Q1 2016 Results - Earnings Call Transcript

AT&T Inc. (NYSE:T)

Q1 2016 Earnings Conference Call

April 26, 2016 4:30 PM ET


Michael Viola - Investor Relations

John Stephens - Senior Executive Vice President and Chief Financial Officer

Randall Stephenson - Chairman, President and Chief Executive Officer


Mike McCormack - Jefferies

John Hodulik - UBS

Phil Cusick - JPMorgan

David Barden - Bank of America

Amir Rozwadowski - Barclays Capital

Michael Rollins - Citi Research

Tim Horan - Oppenheimer

Brett Feldman - Goldman Sachs

Simon Flannery - Morgan Stanley

Frank Louthan - Raymond James

Amy Young - Macquarie


Ladies and gentlemen, thank you for standing by, and welcome to the 2016 AT&T First Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the conference over to your host, Senior Vice President of Investor Relations, Michael Viola. Please go ahead, sir.

Michael Viola

Thank you, Kathy. Good afternoon, everyone, and welcome to our first quarter conference call. It's great to have everybody with us today. Joining me on the call today is John Stephens, AT&T's Chief Financial Officer. John will cover our results, and then we will follow with a Q&A session. Let me remind you, our earnings material is available on the Investor Relations page of the AT&T website. That’s

Of course, I need to call your attention to the Safe Harbor statement before we begin. The Safe Harbor says that some of the comments today may be forward-looking; and as such, subject to risks and uncertainties, and results may differ materially. Additional information is available on the Investor Relations page of AT&T's website. I also want to remind you that we are in a quiet period for the SEC spectrum auction, so we cannot address any questions about spectrum today.

Now, before I hand the call over to John, let me quickly call your attention to slide 4. Slide 4 provides a consolidated financial summary. We had a very good first quarter at AT&T. First quarter consolidated revenues grew to $40.5 billion, largely due to the acquisition of DIRECTV, but we also saw growth in video and IP-based services on a comparable basis. This offset pressure from lower equipment sales as well as foreign exchange.

We continued our streak of double-digit adjusted EPS growth, and after adjustments – and, by the way, the adjustments included removing over $700 million of benefit from spectrum swaps with other industry participants. And so with those adjustments, first quarter EPS was $0.72, up 10.8%. This strong growth comes even with about $0.03 of earnings pressure from our Mexico wireless operations.

Margins also continue to be a great story. We saw consolidated margin growth, with margin expansion in every domestic business segment. Operating cash flows were up more than $1 billion year-over-year, with free cash flow of $3.2 billion, a 17% increase from a year ago. Capital investment is on plan, coming in at $4.7 billion.

And so with that, I will now turn the call over to AT&T's Chief Financial Officer, John Stephens.

John Stephens

Thanks, Mike, and hello, everyone, and thanks for being on the call. As Mike said, we turned in another solid financial performance. Revenues grew, margins expanded, and we had our fourth straight quarter of double-digit adjusted EPS growth. Growth in strategic business services, IP broadband, and video were big factors. And ad sales in our entertainment group is now more than $1 billion in annualized revenues and growing.

What makes our revenue results even more impressive is we did this with lower equipment sales and with more than $500 million of pressure in foreign exchange and with the ongoing pressure of exiting some of our marginal businesses.