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AT&T added more wireless and fiber subscribers than expected, paid down debt, and continued to invest in fiber and 5G.
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In its first three months as a telecom pureplay in years,
AT&T
showed big subscriber growth from the year-ago period but fell flat on its free cash flow generation. That won’t be positively received by the company’s dividend-focused shareholder base. Elsewhere, the new-look AT&T added more wireless and fiber subscribers than expected, paid down debt, and continued to invest in fiber and 5G.
On Thursday morning, AT&T reported second-quarter adjusted earnings per share of 65 cents, ahead of the analyst consensus estimate of 61 cents. Including
WarnerMedia
,
AT&T earned 73 cents in the same quarter last year, while stand-alone AT&T earned 64 cents per share.
Revenue came in at $29.6 billion, slightly ahead of analysts’ average estimate. That was down 33% year over year, reflecting the shedding of WarnerMedia, or up 2.2% when excluding that now-divested unit from the year-ago period.
AT&T’s adjusted earnings before interest, taxes, depreciation, and amortization—or Ebitda—was $10.3 billion, about $100 million short of consensus but up by about $175 million from stand-alone AT&T’s year-ago period.
Free cash flow was poor: AT&T brought in $1.4 billion in the second quarter, versus analysts’ average estimate of $4.7 billion. Citing the impacts of funding additional working capital and higher subscriber growth, management reduced its free cash flow guidance for the full year, to $14 billion from $16 billion previously. That will require AT&T generating more than $5 billion in free cash flow in both the third and fourth quarters of 2022. Management has a target of $20 billion in free cash flow in all of 2023.
On the subscriber front, AT&T reported postpaid net additions—an all-important metric for wireless companies that refers to customers who pay a monthly bill—of almost 1.1 million, including 813,000 phones. The Wall Street consensus had been for postpaid net additions of about 546,000, including 400,000 phones.
That subscriber growth helped boost AT&T’s Mobility segment revenue 5.2% year over year, to $19.9 billion—topping consensus by $300 million. That included a 4.6% increase in service revenue, which are most important because they are high-margin and tend to be recurring, as opposed to sales of smartphones or other one-time charges. AT&T management now expects 2022 service revenue growth to be between 4.5% and 5%, up from previous guidance of at least 3% growth.
AT&T also added a net 316,000 fiber subscribers in the second quarter, to reach 6.6 million total, topping the 294,000 average estimate from analysts. Its Consumer Wireline segment revenue was up 1.1% from a year earlier, to $3.2 billion. Business Wireline did worse: Revenue was down 7.6% year over year, to $5.6 billion.
AT&T stock has returned 16% including dividends year to date, versus a nearly 17% loss for the S&P 500. Much of that outperformance has come since early April, when the telecom giant completed a spinoff of WarnerMedia—which subsequently merged with Discovery to create Warner Bros. Discovery (WBD)—and refocused on the telecom business. The company is investing to build out a nationwide 5G wireless network and extend its wired fiberoptic network to more locations. AT&T stock has fallen 2.1% in premarket trading.
AT&T management will host an analyst call to discuss the second-quarter results at 8:30 a.m. Eastern time. The stock has a dividend yield of 5.4% and a market capitalization of $147 billion.
Verizon Communications
(VZ) is scheduled to report its second-quarter results on Friday morning. Its stock has lost 2% after dividends in 2022.
T-Mobile
US (
TMUS
) reports next Wednesday morning. Its shares are up 18.5% year to date.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
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