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AT&T Inc. (T - Free Report) reported solid third-quarter 2022 results as healthy wireless traction and customer additions was partially offset by lower contribution from divested businesses and lower demand for legacy voice and data services. The company recorded solid subscriber growth backed by a resilient business model and robust cash flow position driven by a diligent execution of operational plans. AT&T expects to continue investing in key areas of 5G and fiber and adjust its business according to the evolving market scenario to fuel long-term growth, while maintaining a healthy dividend payment and actively pruning debt.
Net Income
On a GAAP basis, AT&T reported net income of $6,346 million or 79 cents per share from continued operations compared with $5,019 million or 63 cents per share in the year-ago quarter. The significant year-over-year improvement was primarily attributable to an actuarial gain on benefit plans.
Excluding non-recurring items, adjusted earnings were 68 cents per share compared with 66 cents in the year-earlier quarter. Adjusted earnings for the third quarter comfortably beat the Zacks Consensus Estimate of 61 cents.
Quarterly GAAP operating revenues decreased 4.1% year over year to $30,043 million, largely due to the divestment of the U.S. video business and lower revenues from Business Wireline services. The top line, however, beat the consensus mark of $29,816 million.
Adjusted operating income for the quarter was $6,216 million compared with $6,374 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 20.7% and 20.3%. Adjusted EBITDA declined to $10,714 million from $10,803 million.
AT&T witnessed solid subscriber momentum with 964,000 post-paid net additions and 108,000 prepaid phone net additions. This included 708,000 postpaid wireless phone additions. Postpaid churn was 1.01% compared with 0.92% in the year-ago quarter. Postpaid phone-only average revenue per user (ARPU) increased 2.4% year over year to $55.67 due to improved international roaming and shift to higher-priced unlimited plans. AT&T is currently covering 100 million people with mid-band 5G spectrum and expects to reach the 130 million mark by the end of year.
Segmental Performance
Communications: Total segment operating revenues were up 3.2% to $29,131 million as decline in Business Wireline (down 4.5% to $5,668 million) was offset by a healthy gain in the Mobility business (up 6% to $20,278 million) and Consumer Wireline (up 1.4% to $3,185 million). Service revenues from the Mobility unit improved 5.6% to $15,337 million driven by solid subscriber gains, while equipment revenues improved 7.2% year over year to $4,941 million driven by higher mix of high-priced smartphone sales and other postpaid devices. Revenues from Consumer Wireline business were up due to gain in fiber broadband. AT&T recorded net fiber additions of 338,000 and has the ability to serve 18.5 million customer locations in more than 100 U.S. metro areas. Revenues from Business Wireline were down due to decline in legacy products as customers shifted to more advanced IP-based offerings.
Segment operating income was $7,631 million compared with $7,168 million in the year-ago quarter for respective operating margin of 26.2% and 25.4%. Adjusted EBITDA was $11,815 million compared with $11,282 million in the year-ago quarter.
Latin America: Total operating revenues were $785 million, up 8.4% year over year, due to growth in service revenues. EBITDA improved to $101 million from $27 million in the year-ago quarter for respective margins of 12.9% and 3.7%.
Cash Flow & Liquidity
AT&T generated $25,464 million of cash from operations in the first nine months of 2022 compared with $29,093 million in the prior-year period. Free cash flow at quarter end was $3,840 million compared with $3,821 million in the year-ago period, bringing the tally for the first nine months of 2022 and 2021 at $8,035 million and $13,029 million, respectively. As of Sep 30, 2022, AT&T had $2,423 million of cash and cash equivalents with long-term debt of $123,854 million. Net debt to adjusted EBITDA was about 3.22x.
Outlook
As a standalone company, AT&T expects wireless service revenues to grow at the higher end of its 4.5%-5% forecast range for 2022. Adjusted earnings are likely to be in the range of $2.50 per share or higher, while free cash flow is expected to be in the vicinity of $14 billion due to higher capital investments. While optimizing operations, it is aiming to increase efficiencies to lower operating costs, while focusing on 5G and fiber-based connectivity along with expanded reach of software-based entertainment platforms. The company is also aiming to reduce its debt burden by monetizing non-core assets.
Sierra Wireless has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 229.9%, on average, in the trailing four quarters. Over the past year, the stock has gained 77.8%. Earnings estimates for the current year have moved up 4400% since October 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
InterDigital, Inc. (IDCC - Free Report) , sporting a Zacks Rank #1, is another key pick for investors. It has a long-term earnings growth expectation of 25% and delivered a stellar earnings surprise of 81.9%, on average, in the trailing four quarters.
InterDigital is focused on pursuing agreements with unlicensed customers in the handset and consumer electronics markets. The company aims to become a leading designer and developer of technology solutions and innovation for the mobile industry, IoT and allied technology areas. InterDigital’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 23.3% upward since October 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 15.9%, on average. It has soared 158.3% in the past two years.
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AT&T (T) Tops Q3 Earnings Estimates on 5G & Fiber Momentum
AT&T Inc. (T - Free Report) reported solid third-quarter 2022 results as healthy wireless traction and customer additions was partially offset by lower contribution from divested businesses and lower demand for legacy voice and data services. The company recorded solid subscriber growth backed by a resilient business model and robust cash flow position driven by a diligent execution of operational plans. AT&T expects to continue investing in key areas of 5G and fiber and adjust its business according to the evolving market scenario to fuel long-term growth, while maintaining a healthy dividend payment and actively pruning debt.
Net Income
On a GAAP basis, AT&T reported net income of $6,346 million or 79 cents per share from continued operations compared with $5,019 million or 63 cents per share in the year-ago quarter. The significant year-over-year improvement was primarily attributable to an actuarial gain on benefit plans.
Excluding non-recurring items, adjusted earnings were 68 cents per share compared with 66 cents in the year-earlier quarter. Adjusted earnings for the third quarter comfortably beat the Zacks Consensus Estimate of 61 cents.
AT&T Inc. Price, Consensus and EPS Surprise
AT&T Inc. price-consensus-eps-surprise-chart | AT&T Inc. Quote
Quarter Details
Quarterly GAAP operating revenues decreased 4.1% year over year to $30,043 million, largely due to the divestment of the U.S. video business and lower revenues from Business Wireline services. The top line, however, beat the consensus mark of $29,816 million.
Adjusted operating income for the quarter was $6,216 million compared with $6,374 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 20.7% and 20.3%. Adjusted EBITDA declined to $10,714 million from $10,803 million.
AT&T witnessed solid subscriber momentum with 964,000 post-paid net additions and 108,000 prepaid phone net additions. This included 708,000 postpaid wireless phone additions. Postpaid churn was 1.01% compared with 0.92% in the year-ago quarter. Postpaid phone-only average revenue per user (ARPU) increased 2.4% year over year to $55.67 due to improved international roaming and shift to higher-priced unlimited plans. AT&T is currently covering 100 million people with mid-band 5G spectrum and expects to reach the 130 million mark by the end of year.
Segmental Performance
Communications: Total segment operating revenues were up 3.2% to $29,131 million as decline in Business Wireline (down 4.5% to $5,668 million) was offset by a healthy gain in the Mobility business (up 6% to $20,278 million) and Consumer Wireline (up 1.4% to $3,185 million). Service revenues from the Mobility unit improved 5.6% to $15,337 million driven by solid subscriber gains, while equipment revenues improved 7.2% year over year to $4,941 million driven by higher mix of high-priced smartphone sales and other postpaid devices. Revenues from Consumer Wireline business were up due to gain in fiber broadband. AT&T recorded net fiber additions of 338,000 and has the ability to serve 18.5 million customer locations in more than 100 U.S. metro areas. Revenues from Business Wireline were down due to decline in legacy products as customers shifted to more advanced IP-based offerings.
Segment operating income was $7,631 million compared with $7,168 million in the year-ago quarter for respective operating margin of 26.2% and 25.4%. Adjusted EBITDA was $11,815 million compared with $11,282 million in the year-ago quarter.
Latin America: Total operating revenues were $785 million, up 8.4% year over year, due to growth in service revenues. EBITDA improved to $101 million from $27 million in the year-ago quarter for respective margins of 12.9% and 3.7%.
Cash Flow & Liquidity
AT&T generated $25,464 million of cash from operations in the first nine months of 2022 compared with $29,093 million in the prior-year period. Free cash flow at quarter end was $3,840 million compared with $3,821 million in the year-ago period, bringing the tally for the first nine months of 2022 and 2021 at $8,035 million and $13,029 million, respectively. As of Sep 30, 2022, AT&T had $2,423 million of cash and cash equivalents with long-term debt of $123,854 million. Net debt to adjusted EBITDA was about 3.22x.
Outlook
As a standalone company, AT&T expects wireless service revenues to grow at the higher end of its 4.5%-5% forecast range for 2022. Adjusted earnings are likely to be in the range of $2.50 per share or higher, while free cash flow is expected to be in the vicinity of $14 billion due to higher capital investments. While optimizing operations, it is aiming to increase efficiencies to lower operating costs, while focusing on 5G and fiber-based connectivity along with expanded reach of software-based entertainment platforms. The company is also aiming to reduce its debt burden by monetizing non-core assets.
Zacks Rank & Stock to Consider
AT&T currently has a Zacks Rank #3 (Hold).
A better-ranked stock in the broader industry is Sierra Wireless, Inc. , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sierra Wireless has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 229.9%, on average, in the trailing four quarters. Over the past year, the stock has gained 77.8%. Earnings estimates for the current year have moved up 4400% since October 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
InterDigital, Inc. (IDCC - Free Report) , sporting a Zacks Rank #1, is another key pick for investors. It has a long-term earnings growth expectation of 25% and delivered a stellar earnings surprise of 81.9%, on average, in the trailing four quarters.
InterDigital is focused on pursuing agreements with unlicensed customers in the handset and consumer electronics markets. The company aims to become a leading designer and developer of technology solutions and innovation for the mobile industry, IoT and allied technology areas. InterDigital’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 23.3% upward since October 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 15.9%, on average. It has soared 158.3% in the past two years.