AT&T Stock (NYSE:T)

AT&T stock (NYSE:T) was up more than 9% in morning trading Thursday after the telecommunications company topped profit expectations and posted another quarter of sizable subscriber gains.

The company saw 708,000 postpaid phone net additions during the period, building on the 1.5 billion such net additions it saw during the first half of the year. Postpaid phone churn in the latest quarter was 0.84%.

The subscriber traction reflected “more of the same,” AT&T’s T, +7.72% investor relations head Amir Rozwadowski told MarketWatch. While he said that some wireless competitors have been adjusting their promotions every few weeks, he added that AT&T has stayed more consistent with its strategy, something he saw as beneficial for consumers, who understand what the company is offering, and store associates, who don’t have to make major adjustments to their messaging.

AT&T also added 338,000 net fiber subscribers in the third quarter.

Shares were up 9.5% in Wednesday morning trading and on track to log their best single-day performance since March 13, 2020, when they rose 10.0%. The stock is also on track to log its best post-earnings gain since at least 1997, according to Dow Jones Market Data.

Revenue came in at $30.0 billion, down from $31.3 billion a year before, though up from $29.1 billion in revenue for standalone AT&T when adjusting for business divestments. The FactSet consensus was $29.8 billion in revenue.

AT&T attributed the drop in headline revenue during the latest quarter to the divestment of its U.S. video business last July as well as lower business wireline revenue. Those trends were partially offset by higher mobility revenue.

AT&T (NYSE:T) expects growth in mobility service revenues at the “upper end” of the 4.5% to 5% range for the full year. It gave a target of 4.5% to 5% growth in its second-quarter report.

“Our results demonstrate that the strategy we put forward more than two years ago is the right strategy for not only the future of our business but for the future of the communications industry,” Chief Executive John Stankey said on the company’s earnings call.

The current inflationary backdrop impacts both consumers and AT&T, and the company recently raised prices on some legacy plans recently as it dealt with its own inflationary costs. Despite financial pressures on consumers, Rozwadowski said that AT&T has seen consumers trade up to higher-tier plans more generally because they see more value in those plans.

While he said that AT&T was “certainly seeing signs of inflation across our business,” he also emphasized that consumers seem to have a strong appreciation for connectivity services as they evaluate their expenses. “You need phone and broadband probably more now than in the last recession,” Rozwadowski said.

AT&T executives highlighted last quarter that some consumers were taking a bit longer to pay their bills, though they ultimately were still paying them. The company is “not seeing any material change relative to what we saw last quarter,” Rozwadowski said, as customer payment cycles are holding steady at pre-pandemic levels.

The company posted third-quarter income from continuing operations of $6.3 billion, or 79 cents a share, compared with $5.0 billion, or 63 cents a share, in the year-prior quarter.

After adjustments for actuarial gains on benefit plans and some other factors, AT&T notched 68 cents a share in earnings from continuing operations, up from 66 cents a share a year earlier, and also above the 62 cents a share in earnings from continuing operations for standalone AT&T during that year-ago period. The standalone number accounts for the fact that the company divested its U.S. video business last summer.

Analysts tracked by FactSet were modeling 61 cents a share in adjusted earnings for AT&T’s third quarter.

Citi Research analyst Michael Rollins called AT&T’s latest earnings a “step forward,” highlighting that they “reflect a better balance of profitability relative to its revenue growth.”

“Results show that AT&T remains highly competitive in wireless while showing forward progress on improving fiber net adds with its expanding footprint,” he continued in a note to clients.

AT&T generated $3.8 billion in free cash flow from continuing operations during the September quarter, and Chief Financial Officer Pascal Desroches shared on the earnings call that AT&T felt “good about our line of sight to achieving our free-cash-flow target in the $14 billion range for the year.”

Rozwadowski said that the company was focused on putting cash back into the network.

“The business is generating a healthy amount of cash,” he said, and by investing that money in network improvements, AT&T hopes to achieve a “flywheel effect” since an enhanced network can help the company retain customers and convince them to pay up for more expensive plans.

Desroches added on the earnings call that AT&T was “very comfortable with our cash levels after paying our dividend commitment” and said that “this should only increase in future years as we expect cash conversion to improve from here.”

The company models adjusted earnings per share from continuing operations of “$2.50 or higher” for the full year, while analysts tracked by FactSet were looking for $2.53.

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