AT&T Stock Tumbles As Telecom Lowers Free Cash Flow Outlook

AT&T stock tumbled Thursday after the telecom company added more wireless postpaid phone subscribers than expected in the June quarter but lowered its full-year free cash flow outlook. Most of the 2022 gains of T stock evaporated.

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“While AT&T’s wireless business posted materially better-than-expected Q2 results, a $2 billion cut to 2022 FCF guide muddled the outlook,” said Wells Fargo analyst Eric Luebchow in a report. “Despite earnings guidance remaining unchanged, AT&T is feeling cash flow pressure from a lengthening of customer collections and higher device payments on top of  inflationary pressures.”

He added: “AT&T also wouldn’t commit to the $20 billion FCF guide they previously gave for 2023, which increasingly looks aspirational vs. realistic based on the Q2 print.”

AT&T earnings excluded WarnerMedia, spun off in early April, and DirecTV. AT&T (T) said second-quarter adjusted earnings from continuing operations were 65 cents, down 11% from a year earlier. Revenue for T stock fell 17% to $29.6 billion.

Analysts had projected AT&T earnings of 61 cents a share on revenue of $29.5 billion, according to FactSet. A year earlier, AT&T stock earned 73 cents a share on revenue of $44 billion. AT&T said its adjusted profit from just stand-alone operations —excluding the WarnerMedia and DirecTV units — were 64 cents a year earlier.

AT&T stock tumbled 7.6% to close at 18.92 on the stock market today.

AT&T Stock: Free Cash Flow Outlook Lowered

Also, AT&T said it added 813,000 postpaid wireless phone customers vs. estimates for a 562,000 gain. AT&T’s wireless service revenue climbed 5.2% to $19.9 billion vs. estimates of $19.7 billion.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 2.5% to $8.2 billion.

Free cash flow generated from continuing operations in Q2 was $1.4 billion amid higher capital spending, the company said. That missed consensus estimates of $4.62 billion in FCF.

“Free cash flow of just $1.4 billion was a very large miss for the second straight quarter, coming in fully 70%  lower than consensus,” said Craig Moffett, analyst at MoffettNathanson in a report.

AT&T lowered its full-year free cash flow guidance to a $14 billion range from a $16 billion range.

In its earnings release, AT&T said: “This outlook reflects the expectation of lower vendor device payments by more than $3 billion, approximately $2 billion in lower capital investment, benefits from first half of the year customer growth, which include recent price increases, and lower cash interest payments.”

AT&T added: “We expect these benefits to be partially offset by reduced distributions from DirecTV and our expectations for some incremental pressure on cash collections.”

T Stock Up In 2022

AT&T stock had climbed 10% in 2022 ahead of the earnings report.

Heading into the AT&T earnings report, the telecom stock owned a Relative Strength Rating of 91, according to IBD Stock Checkup. Also, T stock had neared an entry point of 21.49 from a cup-with-handle base.

WarnerMedia merged with Discovery in early April. The new media company is called Warner Bros. Discovery (WBD).

AT&T cut its annual dividend by 46% to $1.11 per share because of the WarnerMedia spinoff. Still, AT&T offers a dividend yield of 5.43%.

“Management did not commit to any dividend-specific actions going forward, notably deferring to the board on any future dividend growth, which we believe is the most critical aspect,” said Raymond James analyst Frank Louthan in a report. “We remain hopeful for a token dividend increase, with buybacks also a possibility. We expect more clarity on this before year-end.”

Also, AT&T spun off DirecTV to TPG Capital in August 2021.

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Follow Reinhardt Krause on Twitter @reinhardtk_tech   for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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