Perhaps AT&T (NYSE:T) has the right strategy, after all.
Earlier today, the telco reported market-matching yet strong results for the fourth quarter. Diluted per-share earnings rose 24.4%, as AT&T added 2.7 million net wireless subscribers, the second-largest total in company history.
Expense management helped produce the gain. Total revenue declined by 0.7%. But that was offset by bigger reductions in selling and other administrative expenses, which fell 3.7%, and interest, which declined 1.8%. Nice work on management's part.
Interestingly, luck also played a part in AT&T's strong showing. Look at the "other income" line. There, AT&T enjoyed a stunning $534 million reversal, transforming last year's $425 million expense into a $109 million gain. Overall net income rose $615 million during Q4.
To be fair, much of the gain stems from a $445 million charge last year from "merger-related trust investment losses," a spokesperson told me. So be it. The broader point is that we're not likely to see this sort of gain again soon.
Brrrrrrrring! Hello? Maaaaaa ... it's Steve
And yet this could be a minor concern. More than 60% of AT&T's revenue is now derived from its two growing businesses: wireless and data.
Wireless is the business to watch. AT&T has joined Verizon (NYSE:VZ), Sprint Nextel (NYSE:S), and Deutsche Telekom's (NYSE:DT) T-Mobile in cutting wireless prices on some wireless plans, while it explores new data fees for customers who haven't yet upgraded to a smartphone.
There's a reason for this: Smartphones are where the money is. That's why AT&T agreed to pay a hefty price to distribute Apple's (NASDAQ:AAPL) iPhone, and the deal continues to produce dividends. In Q4, AT&T said it activated 3.1 million iPhones during the quarter, one-third of which were new.
Add it up, and what you're left with is a good quarterly showing. Congratulations, AT&T. Just don't get cocky. Expense management is fine, but there will come a day when cost cuts won't be enough -- and it could arrive sooner than any of us expect.
Now it's your turn to weigh in. Were you impressed by AT&T's showing? Is the company on the right path, or is good expense management obscuring fundamental weaknesses in the business? Please vote in the poll below. You can also make your voice heard by leaving a comment.
