AT&T Inc. (NYSE:T) stock fell on Thursday after the telecom company added more postpaid wireless phone subscribers than expected in the second quarter. However, it lowered its free cash flow outlook for the entire year.
AT&T beats on revenue and profits
AT&T’s revenues excluded WarnerMedia, which spun off in early April, and DirecTV. AT&T said the second-quarter adjusted profit from continuing operations was 65 cents, down 11% from a year earlier. Revenue from T shares fell 17% to $29.6 billion. The company said revenue grew from increased service and equipment revenue.
According to FactSet, analysts had forecast AT&T earnings of 61 cents a share on revenue of $29.5 billion. A year earlier, AT&T stock gained 73 cents per share on revenue of $44 billion. AT&T said its adjusted profit from standalone operations alone — excluding WarnerMedia and DirecTV units — was 64 cents a year earlier.
AT&T stock plunged 8.8% to 18.66 in morning trading on the stock market today.
In addition, AT&T said it added 813,000 postpaid wireless phone customers from estimates for a gain of 562,000. AT&T’s wireless revenue climbed 5.2% to 19.9 billion against estimates of $19.7 billion.
AT&T reported postpaid net additions of 1,058,000, higher than the estimated 816,900. The second quarter figure was slightly lower than the same quarter a year earlier.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 2.5% to $8.2 billion.
AT&T lowers its free cash flow outlook
The company said that free cash flow from continuing operations in the second quarter was $1.4 billion amid higher capital spending. This missed consensus estimates of $4.62 billion in FCF.
“Free cash flow of just $1.4 billion was a very big miss for the second straight quarter, being 70% below consensus,” MoffettNathanson analyst Craig Moffett said in a report.
AT&T said it was increasing its mobility services revenue forecast to 4.5% to 5% for fiscal year 2022 based on higher-than-expected customer growth in its mobility business. However, AT&T lowered its free cash flow forecast for the full year to $14 billion from $16 billion due to the company’s significant investments in growth.
With just $4 billion in free cash flow so far, AT&T now expects to see $10 billion in free cash flow in the second half of this year.
How does AT&T arrive at that $10 billion figure in the second half?
In its earnings release, AT&T said, “This outlook reflects the expectation of lower device vendor payments of more than $3 billion, approximately $2 billion of lower capital investments , benefits from customer growth in the first half, which include recent price increases, and lower cash interest payments.”
AT&T added, “We expect these benefits to be partially offset by reduced DirecTV distributions and our expectation of additional cash-out pressure.”
AT&T stock had climbed 10% in 2022 before the earnings report.
AT&T combined its WarnerMedia business with Discovery
In early April, Discovery, Inc. and AT&T announced that they have completed their transaction to combine the WarnerMedia business with Discovery.
The transaction created Warner Bros. Discovery (NASDAQ:WBD), a global leader in entertainment and streaming. Warner Bros. Discovery started trading on the Nasdaq as “WBD” on April 11.
AT&T cut its annual dividend by 46% to $1.11 per share due to the WarnerMedia spin-off. Still, AT&T offers a dividend yield of 5.43%.
In addition, AT&T divested DirecTV to TPG Capital in August 2021.
Featured Image: Megapixl © Nicoelnino
