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AT&T’s Wireless Margins Improved in 2Q15

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Aug. 10 2015, Updated 11:05 a.m. ET

AT&T’s profitability in 2Q15

In this series, we looked at the 2Q15 performance of AT&T’s (T) wireline and wireless segments. The telecom company reported its results on July 23, 2015. We learned about the lackluster revenue growth of the wireless segment. We also learned about the declining revenues of the wireline division. The wireless segment’s revenue grew by ~2.1% year-over-year (or YoY) to ~$18.3 billion, while the wireline segment’s 2Q15 revenue declined ~1% YoY, even after excluding 2Q14 results of the Connecticut operations AT&T sold to Frontier Communications (FTR).

AT&T’s profitability from core operations increased significantly in 2Q15. AT&T’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew robustly by ~8.2% to reach ~$11.1 billion in 2Q15.

AT&T’s EBITDA comfortably beat Wall Street analysts expectations by ~6% in 2Q15. As you can see in the above chart, AT&T reported EBITDA that beat Wall Street analysts’ average estimated EBITDA even in 1Q15. In 3Q14 and 4Q14, Wall Street expected AT&T to report a higher EBITDA.

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Growth in AT&T’s profitability was driven by wireless segment

AT&T’s margin improved significantly during 2Q15 on a YoY basis. The adjusted EBITDA margin expanded from ~31.5% in 2Q14 to ~33.6% in 2Q15. AT&T’s wireline margins improved slightly YoY in 2Q15. However, there was substantial YoY expansion in the wireless margin.

The wireless segment’s adjusted EBITDA service margins increased from ~42.6% in 2Q14 to ~48.5% in 2Q15. According to the company, one of the reasons for the YoY improvement in the wireless service margin was increased penetration of AT&T’s Next plan. Installment plans such as AT&T’s Next, Verizon’s Edge (VZ), and T-Mobile’s (TMUS) Jump are more profitable for wireless carriers than traditional contract-based subsidy plans.

You can get diversified exposure to AT&T by investing in the SPDR S&P 500 ETF (SPY). The ETF had ~1.0% of its holdings in the integrated telecom company on June 30, 2015. You can also consider investing in the Technology Select Sector SPDR Fund (XLK). XLK held ~4.6% in AT&T at the end of June.

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