AT&T posts higher profit

AT&T shares rose 4 percent after the results, which analysts said showed that the company appeared to be succeeding in cutting costs and taking advantage of its 60 percent stake in Cingular.

AT&T said earnings, including those of Cingular but excluding merger-related costs and other special items, were 58 cents a share in the second quarter, up 35 percent from a year earlier.

That exceeded analysts' average forecast of 53 cents per share, according to Reuters Estimates.

The company raised its forecast for a full-year, consolidated operating income margin to a range of 17 percent to 18 percent, up from a previous forecast of 15 percent to 16 percent.

"It's a pretty strong set of numbers," said Chris Watts, a partner at Atlantic Equities. "We're seeing good operating-expense trends, with the company raising its margin guidance for the full year." Atlantic Equities has a "buy" rating and a year-end share price target of $30 on the company.

AT&T said earnings were helped by a rise in subscribers at Cingular, which reported last week that it added 1.5 million customers in the quarter.

AT&T said consolidated revenue, excluding Cingular, totaled $15.8 billion. It gave no consolidated-revenue figure, including Cingular.

According to Reuters Estimates, revenue including Cingular was $21.34 billion. Analysts' average forecast was $21.26 billion.

Like most U.S. telephone companies, AT&T is depending on the increasing popularity of mobile phones and the Internet for growth, amid a decline in traditional phone subscribers.

AT&T is set to buy BellSouth, its partner in Cingular, later this year. On Monday, BellSouth posted a 15 percent rise in second-quarter earnings.

AT&T also plans to expand its Web-based television service this year, fighting back against cable TV providers that have been taking away customers with all-in-one packages of voice, Internet and video services.

It said that by year-end, it would expand its Internet-based "U-Verse" television service, currently offered in San Antonio to 15 to 20 markets within its traditional 13-state wireline area.

It also said the cost of "Project Lightspeed," its plan to build a more expansive fiber-optic network, would reduce 2006 earnings by 5 cents to 7 cents a share, rather than the 8 cents to 10 cents it forecast in January.

It said it expects pension and retiree costs to reduce 2006 earnings by 4 cents to 6 cents a share, rather than the 6 cents to 8 cents it forecast in January.

The company also forecast that capital spending this year would be at "the high end or slightly above" previous expectations of $8 billion to $8.5 billion.

AT&T shares rose $1.29 to $29.07 in morning trading on the New York Stock Exchange. The shares are up 20 percent from a year earlier, compared with an 8 percent rise in the Standard & Poor's index of telecommunications providers.

AT&T was formed through the November 2005 merger between SBC Communications and AT&T. The company said it expects the merger to produce operating expense savings of $700 million to $900 million, up from a previous forecast of $600 million to $700 million.