AT&T’s Forecast Falls Short as IPhone Hold Nears End

AT&T Inc., the wireless carrier that is about to lose its exclusive hold on the Apple Inc. iPhone in the U.S., predicted full-year earnings that may miss analysts’ estimates. The stock fell.

Earnings this year will increase by a “mid-single digits” percentage from last year’s $2.22 a share, Dallas-based AT&T said today in a statement. At 5 percent growth, earnings would be about $2.33, compared with $2.50, the average of estimates compiled by Bloomberg.

Chief Executive Officer Randall Stephenson is trying to boost earnings this year without the exclusive iPhone deal, an arrangement that helped AT&T attract users for more than three years. Verizon Wireless will begin selling the smartphone next month, heating up the competition between the two biggest U.S. mobile-phone carriers.

“Guidance is disappointing,” Jonathan Chaplin, a Credit Suisse Group AG analyst, said today in a note. AT&T may be assuming contract-subscriber gains for this year, which would drive up handset-subsidy costs and lower earnings growth, he said. Chaplin, who rates AT&T shares “outperform,” is predicting little change in contract-customer numbers.

Shares of AT&T fell 60 cents, or 2.1 percent, to $28.13 at 4 p.m. in New York Stock Exchange composite trading for the biggest drop since Jan. 6. The stock rose 4.8 percent last year.

Verizon IPhone

Verizon Communications Inc., co-owner of Verizon Wireless with Vodafone Group Plc, this week forecast 2011 revenue growth of as much as 8 percent, topping analysts’ estimates. The New York-based company said it may boost earnings per share by 5 percent to 8 percent if it can sell 11 million iPhones in 2011.

With 95.5 million customers at year end, up from 92.8 million in the third quarter, AT&T overtook Verizon Wireless as the largest U.S. mobile-phone carrier. Verizon had 94.1 million customers, up from 93.2 million in the previous quarter.

The Verizon iPhone will make results “rocky” in early 2011, Stephenson said on a conference call. “I feel fairly confident we’re going to be able to grow over the course of the year through the disruption,” he said.

AT&T said it added 400,000 contract customers last quarter. JPMorgan Chase & Co. analyst Philip Cusick estimated 525,000 and Oppenheimer & Co.’s Tim Horan forecast 550,000.

AT&T activated 4.1 million iPhones last quarter, down from 5.2 million in the third quarter. Jennifer Fritzsche, a Wells Fargo & Co. analyst, and Oppenheimer’s Horan both expected about 4 million activations.

Profit Slump

Fourth-quarter profit, excluding some costs, rose to 55 cents a share. Analysts projected 54 cents, the average of estimates compiled by Bloomberg. Sales advanced to $31.4 billion, compared with the $31.5 billion average estimate.

Net income fell to $1.09 billion, or 18 cents a share, from $2.73 billion, or 46 cents, a year earlier, partly because of pension and severance costs.

Analysts’ estimates for full-year earnings may not include an estimated 7-cent reduction in EPS for interest expenses related to the company’s spectrum purchases, said Kate Tellier, a spokeswoman for AT&T.

The company boosted subscribers to its U-verse television and Internet service by 246,000, to almost 3 million. That compares with a gain of 248,000 in the year-earlier period.

AT&T and Verizon said this month they altered their pension accounting, paring billions off previous earnings cycles. The companies will account for gains and losses to their pension accounts, which provide benefits for former employees, in the year they occurred, rather than spreading the losses and gains out in future earnings.

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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