AT&T Inc posted a better-than-expected profit particularly in its wireline business and said it was more optimistic on growth prospects for 2010, sending its shares up 2 percent in early trade.
While the exclusive U.S. provider for Apple Inc's iPhone posted wireless customer growth that was slower than expected for the second quarter, it cheered up investors by forecasting strong earnings per share growth for the full year 2010 after previously promising stable-to-improved results.
People look at the large companies like AT&T for tone on the economy and that tone appears to be positive in the release, said BTIG analyst Walt Piecyk.
Several analysts applauded improvements in the company's 32.5 percent wireline profit margin. This compared with expectations for 30.4 percent and 31 percent from two analysts contacted by Reuters.
The margins in the wireline business were much better than we were expecting, said Hudson Square analyst Todd Rethemeier who said the strength appeared to come entirely from cost cuts.
For example, the company cut its work force by 1.3 percent or 3,860 people, in the quarter and said the cuts were all in the wireline side of the business.
AT&T, the second biggest U.S. mobile service provider, said its profit rose to $4 billion, or 68 cents per share, from $3.2 billion, or 54 per share in the same quarter a year earlier.
Excluding certain items, earnings per share would have been 61 cents compared with the average analyst expectation for 57 cents according to Thomson Reuters I/B/E/S.
Revenue rose to $30.8 billion from $30.6 billion in the same quarter the year before. AT&T said that second-quarter comparisons are based on results from continuing operations, which excludes revenue from Sterling Commerce, a unit it is selling to International Business Machines Corp .
However, AT&T's growth of valuable monthly-bill paying wireless customers was lower than analysts expected, despite record sales of iPhone 4, the latest device from Apple.
The operator's addition of 496,000 monthly bill paying customers, known as postpaid customers, was below the average expectation for 552,000 from 8 analysts contacted by Reuters.
AT&T activated 3.2 million iPhone customers in the quarter, implying that the vast majority of people buying the device were already AT&T customers rather than customers leaving rivals such as Verizon Wireless or Sprint Nextel .
BTIG's Piecyk said that only 27 percent of iPhone activations were from new customers in the second quarter compared with 33 percent in the first quarter this year.
What that means is the ability of AT&T to bring in new customers because of iPhone is starting to diminish, he said.
Analysts said that additions of about 300,000 prepaid customers who pay for services in advance, were primarily driven by Apple's iPad tablet computer.
Including prepaid services and connections to devices such as the Amazon.com Inc electronic reader Kindle, AT&T added a total 1.6 million customers in the quarter.
AT&T was the first of the big U.S. mobile operators to report second-quarter results. Its bigger rival Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc , is due to report on July 23.
Sprint Nextel, the No. 3 U.S. provider, plans to post its results on July 28.
AT&T shares were up 2 percent at $25.39 in early trading on the New York Stock Exchange.
(Reporting by Sinead Carew; editing by Derek Caney)