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AT&T added extra wi-fi and fiber subscribers than anticipated, paid down debt, and continued to spend money on fiber and 5G.
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In its first three months as a telecom pureplay in years,
AT&T
confirmed big subscriber growth from the year-ago interval however fell flat on its free money move technology and took down steering for the total yr. That wasn’t positively obtained by the corporate’s dividend-focused shareholder base.
Additionally, the new-look AT&T (ticker: T) added extra wi-fi and fiber subscribers than anticipated, paid down debt, and continued to invest in fiber and 5G—whereas starting to really feel the affect of a slowing financial system.
The inventory was down about 9% in Thursday morning buying and selling.
AT&T reported second-quarter adjusted earnings per share of 65 cents, forward of the analyst consensus estimate of 61 cents. Together with
WarnerMedia
,
AT&T earned 73 cents in the identical quarter final yr, whereas stand-alone AT&T earned 64 cents.
Income got here in at $29.6 billion, barely forward of analysts’ common estimate. That was down 33% yr over yr, reflecting the shedding of WarnerMedia, or up 2.2% when excluding that now-divested unit from the year-ago interval.
AT&T’s adjusted earnings earlier than curiosity, taxes, depreciation, and amortization—or Ebitda—have been $10.Three billion, about $100 million in need of consensus however up by about $175 million from stand-alone AT&T’s year-ago interval.
Free money move was poor: AT&T introduced in $1.Four billion within the second quarter, versus analysts’ common estimate of $4.7 billion. CFO Pascal Desroches advised Barron’s that the shortfall was resulting from: Extra working capital was required to support subscriber growth—financing smartphones, for instance; the yr’s funding spending fell extra closely within the first half of the yr; enterprise wireline underperformed resulting from sooner income declines and value inflation; and prospects are taking up common two days longer to pay their payments.
For a corporation of AT&T’s scale, that two-day delay meant $1 billion much less in free money move final quarter. “We don’t assume that that will get higher as we undergo the yr,” Desroches stated. “If that development continues and we’re additionally rising greater than we thought, we thought it could be prudent to take down the [FCF] steering, particularly on this macro atmosphere.”
Administration decreased its free money move steering for the total yr, to $14 billion from $16 billion. That may require AT&T producing greater than $5 billion in free money move in each the third and fourth quarters. That decrease free money move gained’t threaten AT&T’s dividend protection or funding spending, however it should imply much less debt compensation this yr. Administration has a goal of $20 billion in free money move in all of 2023.
Issues appeared good on the subscriber entrance: AT&T reported postpaid internet additions—an all-important metric for wi-fi corporations that refers to prospects who pay a month-to-month invoice—of just about 1.1 million, together with 813,000 telephones. The Wall Avenue consensus had been for postpaid internet additions of about 546,000, together with 400,000 telephones.
That subscriber development helped increase AT&T’s Mobility phase income 5.2% yr over yr, to $19.9 billion—topping consensus by $300 million. That included a 4.6% enhance in service income, that are most essential as a result of they’re high-margin and are usually recurring, versus gross sales of smartphones or different one-time prices. AT&T administration now expects 2022 service income development to be between 4.5% and 5%, up from earlier steering of not less than 3% development.
“Operationally the enterprise is performing very properly,” Desroches advised Barron’s.
AT&T additionally added a internet 316,000 fiber subscribers within the second quarter, to achieve 6.6 million complete, topping the 294,000 common estimate from analysts. Its Client Wireline phase income was up 1.1% from a yr earlier, to $3.2 billion. Enterprise Wireline did worse: Income was down 7.6% yr over yr, to $5.6 billion. That contributed to the shortfall in free money move within the quarter, and is an indication of rockier financial occasions.
On Thursday earnings name, AT&T CEO John Stankey emphasised the stickiness of AT&T’s merchandise—recession or not individuals will likely be loath to cancel their cellphone or house web providers. That stated, AT&T is starting to really feel the affect of a slowing financial system.
“The present atmosphere isn’t straightforward to foretell,” Stankey stated. “We’re seeing extra strain on enterprise wireline than anticipated and on the patron facet of our enterprise, we’re seeing a rise in dangerous debt to barely increased than prepandemic ranges in addition to prolonged money assortment cycles.”
That gained’t affect AT&T’s funding plans, nevertheless. The corporate intends to spend roughly $24 billion this yr on constructing out its 5G and fiber networks.
“We’re assured we are able to preserve our focus for development over the long-term by investing in the way forward for connectivity by 5G and fiber,” Stankey stated. “It’s our perception that near-term cyclical financial uncertainty doesn’t warrant a retrenchment within the deployment of long-lived belongings.”
Earlier than Thursday’s drop, AT&T inventory had returned 16% together with dividends in 2022, versus a virtually 17% loss for the
S&P 500.
A lot of that outperformance had come since early April, when the telecom big accomplished a spinoff of WarnerMedia—which subsequently merged with Discovery to create Warner Bros. Discovery (WBD)—and refocused on the telecom enterprise. The corporate is investing to construct out a nationwide 5G wi-fi community and lengthen its wired fiberoptic community to extra places.
AT&T inventory has a dividend yield of 5.4% and a market capitalization of $147 billion.
Verizon Communications
(VZ) is scheduled to report its second-quarter outcomes on Friday. Its inventory has misplaced 2% after dividends in 2022.
T-Mobile
US (
TMUS
) stories subsequent Wednesday. Its shares are up 18.5% this yr.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com