U.S telecom major, AT&T Inc. (T - Free Report) reported mixed financial results in the third quarter of 2016. While the top line failed to meet the Zacks Consensus Estimate, the bottom line was in line with the same. In the reported quarter, the company’s total international video customers declined by 47,000. AT&T lost 326,000 U-verse customers but gained 323,000 satellite TV customers.

On a GAAP basis, AT&T reported net income of $3,328 million or 54 cents per share in comparison with $2,994 million or 50 cents, respectively, in the year-ago quarter. Quarterly adjusted earnings per share were 74 cents, in line with the Zacks Consensus Estimate.

Quarterly total revenue increased 4.60% year over year to $40,890 million but fell below the Zacks Consensus Estimate of $41,095 million. Total operating expenses in the reported quarter were $34,482 million, up 3.96% year over year. Operating income was $6,408 million compared with $5,923 million in the year-ago quarter.

Cash Flow & Liquidity

In the third quarter of 2016, AT&T generated $29,202 million of cash from operations compared with $26,695 million in the year-ago quarter. Free cash flow in the reported quarter was $5,182 million compared with $5,542 million a year ago.

At the end of the first nine months of 2016, AT&T had $5,895 million of cash and cash equivalents and $117,239 million of total debt outstanding compared with $5,121 million and $118,515 million, respectively, at the end of 2015. The debt-to-capitalization ratio was 0.29 at the end of the third quarter of 2016 which was in line with that at the end of 2015.

Business Solutions Segment

Total revenue at the segment was $17,767 million, up 0.42% year over year. Of this, Wireless service revenues totaled $8,049 million, up 4.1% year over year. Fixed strategic services revenues reached $2,888 million, up 9.14%. Legacy voice and data services contributed $4,046 million, down 12.3%. Other service & equipment generated $908 million, up 2.6% while Wireless Equipment revenues totaled $1,876 million, up 3.47%. Operating income was $4,303 million, up 0.14%. Operating margin was 24.2% flat y/y.

As of Sep 30, 2016, the Business Solutions wireless subscriber base was 79,427,000, up 10.9%. Within this, Postpaid wireless subscriber count totaled 50,014,000 and Connected Devices were 29,355,000. In the reported quarter, this segment gained a net of 191,000 Postpaid wireless customers and 1,290,000 Connected Devices. Business wireless postpaid churn rate was 0.97% versus 1.05% in the year-ago quarter.

Entertainment and Internet Services Segment

Total revenue at the segment grossed $12,720 million, up 17.1% year over year (post the DIRECTV acquisition). Of the total, Video entertainment revenues were $9,026 million, up 26.03%. High-Speed Internet revenues were $1,892 million, up 12.3%. Legacy voice and data services contributed $1,168 million, down 17.7%. Equipment and Other service generated $634 million, down 7.09%. Operating income was $1,488 million in the reported quarter versus $1,019 million in the prior-year quarter. Operating margin was 11.7%, compared with 9.38% in the year-earlier quarter.

As of Sep 30, 2016, total video connections at this segment were 25,292,000, down a 0.52%. Of the total, Satellite connections tallied 20,777,000 and U-verse connections were 4,515,000. In the reported quarter, AT&T lost 326,000 U-verse customers but gained 323,000 satellite TV customers. Total broadband connections at this segment were 14,176,000, down 1.02%. Total wireline voice connections were 11,533,000, down 10.5%.

Consumer Mobility Segment

Total revenue at the segment was $8,267 million, down 5.9% year over year. Of the total, Service revenues were $6,914 million, down 6.1%. Equipment revenues generated $1,353 million, down 4.8%. Operating income was $2,572 million, down 6.2%. Operating margin was 31.1% compared with 31.2% in the prior-year quarter.

As of Sep 30, 2016, the Consumer Mobility wireless subscriber base was 53,911,000, down 1.7%. Of this, Postpaid wireless subscribers totaled 27,374,000 and Prepaid wireless customers were 13,035,000. Reseller wireless subscriber base totalled 12,566,000 and Connected Devices count was 936,000. In the reported quarter, this segment gained a net of 21,000 postpaid wireless customers, 304,000 prepaid customers and 41,000 connected devices but lost a net of 316,000 resellers. Consumer Mobility postpaid churn rate was 1.19% compared with 1.33% in the year-ago quarter. Total churn rate for the segment was 2.11%, up from 1.90% in the year-ago quarter.

International Segment

Total revenue at the segment was $1,879 million. Within the total, Video entertainment revenues were $1,297 million. Wireless service revenues were $484 million. Wireless Equipment revenues were $98 million. Operating loss was $54 million while operating margin was a negative 2.87%.

As of Sep 30, 2016, the International wireless subscriber base was 10,698,000. In the reported quarter, this segment gained a net of 743,000 wireless customers. Total churn rate was 6.16%. The International video subscriber base touched 12,476,000. The company lost 47,000 International video customers in the reported quarter.

Dividend Hike

Recently, the board of directors of AT&T decided to reward their stockholders with a quarterly dividend of $0.49 per share on the company’s common shares. This is a 2.1% increase from the previous dividend of $0.48 per share. The dividend will be paid on February 1, 2017, to stockholders of record at the closure of business on January 10, 2017. The annual yield on the dividend is 5.2 percent.

Recent Developments

In a major thrust to the ongoing consolidation trend between the telecom and media sectors, AT& has agreed to acquire media giant Time Warner Inc. (TWX - Free Report) in a $85.4 billion cash-and-stock deal. If the proposed merger finally goes through, the combined entity will become a major player in the consolidated telecom-media space.

In the telecom-media space, cable TV giant Comcast Corp. (CMCSA - Free Report) became a media mogul after acquiring NBC Universal in 2011. The company is set to enter the wireless field in mid-2017. Verizon Communications Inc. (VZ - Free Report) took over AOL to target the lucrative online advertising market and its impending acquisition of Yahoo Inc. may provide the company access to world-class online content. Therefore, we believe AT&T’s decision to acquire Time Warner will place it to remain competitive in the changed market condition.

AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AT&T INC Price, Consensus and EPS Surprise