AT&T posts Q2 profit of $3.9B, sells 3.7M iPhones

AT&T posted a modest increase in its second-quarter profit even as it sold 3.7 million iPhones in the period.

The Dallas telecommunications giant posted a profit of $3.9 billion, or 66 cents a share, compared with a year-earlier profit of $3.6 billion, or 60 cents a share. Year-earlier results were helped by the its advertising unit, which no longer contributes revenue or profit because it was sold in May.

Revenue rose 0.3 percent to $31.6 billion.

Analysts, on average, forecast earnings of 63 cents a share and revenue of $31.7 billion, according to Thomson Reuters.

""All in all, a very positive quarter that puts us in a great position heading into the second half of the year," said Chief Financial Officer John Stephens during the company's quarterly investor conference call.

AT&T, like Verizon, continues to be dependent on the iPhone for its subscriber growth. In the quarter, the company said 22 percent of its 3.7 million newly activated iPhones came from new customers. Verizon last week said it added 2.7 million iPhones in the period, as well as 2.9 million total Android smartphones.

The iPhone continues to be an expensive catalyst for the carriers. While it propels customer growth, it carries a cost in the form of the pricey subsidy AT&T must pay to Apple. Still, with virtually every carrier selling the iPhone, it's become a must-have product for every wireless player.

AT&T likewise is seeing a slowdown in growth. It added 320,000 net new contract subscribers in the period, down from the 331,000 customers added a year ago. In total, it added 1.3 million customers, including prepaid, from resellers, and through its connected devices business.

Still, the slower customer growth and fewer smartphone sales have contributed to results that analysts like. AT&T is "firing on all cylinders," according to Nomura analyst Mike McCormack.

Wall Street isn't so pleased. Shares are down 83 cents, or 2.3 percent, to $34.55.

Including the iPhone, smartphones dominated the quarter. The company sold 5.1 million smartphones in the period, which represented 77 percent of sales to contract customers. The number is down from the 5.6 million smartphones it sold last year, which Stephens attributed to new policies that discourage early upgrades.

Its customer turnover rate fell to 1.18 percent from 1.43 percent a year ago.

The wireless unit saw its revenue grow 4.8 percent to $16.4 billion.

The wireline business continues to struggle, slipping 0.8 percent to $14.9 billion. The company generates a lot of revenue from its business unit, which still hasn't fully recovered, as well as with traditional phone service, which has fallen steadily as people opt to use their cell phones instead.

Its newer home phone, Internet, and television service, U-Verse, continues to grow and offset the older legacy businesses. Revenue from residential customers grew 38 percent to $5.5 billion, the biggest increase in more than four years.

AT&T added 155,000 U-Verse TV customers and 553,000 U-Verse Internet customers. But its traditional DSL business saw a steady drop, and total Internet connections fell by 96,000. The company typically attributes seasonal weakness in the second quarter from college students disconnecting their lines before they head off for the summer.

Updated at 8:35 a.m. PT: to include comments from an AT&T executive and an analyst, as well as additional background.