AT&T Misses Revenue, Beats Q3 Earnings Target Thanks To DirectTV Acquisition

AT&T enjoyed solid third-quarter earnings of $39.1 billion, up nearly 19 percent when compared to the same quarter in 2014. The carrier credited the gain to its $49 billion acquisition of DirectTV in July.

Despite higher revenues year over year for Q3, which ended in September, AT&T still fell short of Wall Street expectations by $1.32 billion. Analysts had predicted revenues of $40.6 billion, up from $33 billion one year ago.

While revenue didn't meet analyst expectations, AT&T asserts that estimates were "inflated" because analysts inaccurately factored the company's acquisition of DirecTV for all of July despite the fact that the acquisition wasn't finalized until July 24. In accordance with generally accepted accounting principles , AT&T is only allowed to include revenue generated from the acquisition beginning July 25. The current quarter marks the first time AT&T is reporting earnings as one company, the carrier said.

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However, the Dallas-based carrier did beat analyst projections of earnings per share by 5 cents, as they soared to 74 cents. Wall Street expected 69 cents, up from 63 cents a share during the same period last year, according to Thomson Reuters.

Cash from operations totaled $10.8 billion and free cash flow was $5.5 billion, up more than 20 percent over last year's third quarter and was the best cash-generating quarter out of the last 12. "Cash flows were exceptionally strong this quarter [and] healthy cash flows are fundamental to our success," said AT&T's CFO and senior executive vice president, John Stephens, during the earnings call.

As a result, the carrier upped its full-year EPS guidance to between $2.68 and $2.74, an increase from the original outlook of $2.62 to $2.68. This is higher than Wall Street's expectations of $2.61 per share for 2015.

AT&T noted modest growth within its Business Solutions unit, which includes both wireless and wireline results. Business Solutions revenues were up 1.2 percent year over year. The growth is attributed to increased wireline business data revenues for the fourth consecutive quarter, as well as strategic business services revenue growth of 12.6 percent, Stephens said.

"Our Business Solutions team is really doing well in a tough economy in the enterprise [as well as] in the SMB [segments] and this gives us optimism," he said. "Customers appreciate our integrated solutions approach and are migrating to our newest software-defined network services." Business wireless and strategic services revenue growth ioffset declines in legacy wireline products, he said.

According to Stephens, the carrier plans to invest heavily in software-defined networking (SDN). "We plan on virtualizing more than 75 percent of our network by 2020 using cloud infrastructure and SDN," he said. SDN is allowing AT&T to add services such as NetBond, which lets customers connect their AT&T virtual private networks to various cloud providers, as well as Network On Demand, a service that allows customers to adjust network bandwidth as needed in real time.

Offerings like NetBond and Network On Demand have been met with a strong customer response, Stephens said.

"We are seeing acceptance of NetBond and Network On Demand, which are moving customers in a positive direction, and that gives us optimism [going through] the fourth quarter," he said.

Stephens added that AT&T "clearly delivered" on its transformational strategy, and the integration of DirecTV into the carrier's portfolio is on track.

"We believe this is just the beginning," he said. "We are positioned as a unique competitor and the first scaled communications and video provider to offer fully-integrated nationwide products, and we fully expect to increase our momentum as we go forward."