As a shareholder in Motley Fool Stock Advisor recommendation SBC Communications
AT&T reported that Q3 revenue declined 13% from the comparable quarter last year. Consolidated operating income margins continued their decline, down another 0.6% to 14.4%. But the company's $6.6 billion in sales was at the high end of analyst estimates. And earnings of $0.58 a share were $0.07 a share ahead of analyst estimates.
What really matters at AT&T is free cash flow -- and that figure came in at $1 billion for the quarter. The company's quarter-after-quarter bathing in cash has helped it reduce its net debt (total debt minus cash) from $7 billion a year ago to $4.9 billion today.
SBC hopes to buy a valuable brand name that is winding down its consumer and small-business operations to focus on the gigantic enterprise marketplace. AT&T is reducing costs and improving productivity to fight ongoing decreases in long-distance and data-services revenue.
Don't buy the hype.
SBC just turned in a flat quarter and is expected to grow earnings 6% a year for the next five years. AT&T, as a standalone company, was predicted to earn $2.18 per share this year and $1.35 per share next year. There is nothing to get excited about in those numbers.
But the acquisition is going through anyway. At least there's some good news for SBC shareholders: AT&T is now saying that higher analyst revenue projections are now its target, too. AT&T is also showing traction on delivering earnings improvements -- in the form of higher operating margins. So at least it isn't coming into this marriage carrying the excess baggage of poorer-than-expected operating results.
Regardless, this combination of SBC and AT&T doesn't excite me -- even after Verizon
Buying a business in freefall is risky. But as I opined yesterday, SBC's ability to pay a substantial dividend and grow by 6% a year provides a conservative way to meet or beat long-term market returns. Still, as a shareholder, I wish SBC had passed on AT&T.
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