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AT&T Inc. (T - Free Report) reported mixed first-quarter 2022 results as healthy wireless traction 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 $4,762 million or 65 cents per share compared with $7,500 million or $1.02 per share in the year-ago quarter. The significant year-over-year decline was primarily attributable to lower revenues owing to the impact of divested businesses.
Excluding non-recurring items, adjusted earnings were 77 cents per share compared with 85 cents in the year-earlier quarter. Adjusted earnings for the first quarter comfortably beat the Zacks Consensus Estimate of 61 cents.
Quarterly GAAP operating revenues decreased 13.3% year over year to $38,105 million, largely due to the divestment of the U.S. video business and Vrio, and lower revenues from Business Wireline services, partially offset by higher equipment sales within the Mobility business and growth in revenues within WarnerMedia. The top line, however, beat the consensus mark of $28,950 million.
Adjusted operating income for the quarter was $7,070 million compared with $8,853 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 18.6% and 20.1%. Adjusted EBITDA declined to $11,638 million from $13,531 million.
AT&T experienced a net increase in total wireless subscribers of 5.5 million to reach 207.3 million in service. The company witnessed solid subscriber momentum with more than 965,000 post-paid net additions and 113,000 prepaid phone net additions as work-from-home trend continued to gain in popularity. Postpaid churn was 0.94% compared with 0.93% in the year-ago quarter. Postpaid phone-only average revenue per user (ARPU) decreased 0.2% year over year to $54.00 due to promotional discounts.
Segmental Performance
Communications: Total segment operating revenues were up 2.5% to $28,876 million as decline in Business Wireline (down 6.7% to $5,640 million) was offset by a healthy gain in the Mobility business (up 5.5% to $20,075 million) and Consumer Wireline (up 2% to $3,161 million). Service revenues from the Mobility unit improved 4.8% to $14,724 million driven by solid subscriber gains, while equipment revenues improved 7.3% year over year to $5,351 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. 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 $7,029 million compared with $7,431 million in the year-ago quarter for respective operating margin of 24.3% and 26.4%. Adjusted EBITDA was $11,153 million compared with $11,485 million in the year-ago quarter.
WarnerMedia: Total segment revenues were $8,741 million, up 2.5% year over year with higher subscription and content revenues signifying partial recovery from the coronavirus-induced adversities exhibited in the prior-year quarter, partially offset by lower advertising revenues. Subscription revenues improved 4.4% to $3,997 million due to higher HBO Max and HBO subscribers (up 12.8 million year over year). Advertising revenues were down 3% to $1,685 million due to lower linear audiences. Content revenues increased 3.4% to $3,059 million owing to contribution from theatrical product sales and HBO Max licensing, partially offset by lower TV licensing. Operating income was down 32.7% to $1,319 million, as higher investments, programming costs and expenses in HBO Max were partially offset by higher revenues and cost-saving initiatives, for corresponding margin of 15.1%. Adjusted EBITDA was $1,446 million compared with $2,123 million in the prior-year quarter for respective margins of 16.5% and 24.9%. Global HBO and HBO Max subscribers were up to 76.8 million at the end of the quarter, while domestic subscriber base grew 4.4 million with ARPU of $11.24.
Latin America: Total operating revenues were $690 million, down 49.8% year over year, due to the divesture of Vrio. EBITDA declined to $59 million from $93 million in the year-ago quarter for respective margins of 8.6% and 6.8%.
Notable Quarter Developments
AT&T’s game-changing deal with Discovery, Inc. for the divesture of its WarnerMedia business neared completion in the first quarter. The merger was completed on Apr 8, 2022 with the formation of Warner Bros. Discovery, Inc. (WBD - Free Report) . The transaction aims to spin off the carrier’s media assets and merge them with the complementary assets of Discovery. The transaction is expected to enable the carrier to trim its huge debt burden and focus on core businesses. The separation of the media assets is likely to offer the company an opportunity to better align its communications business with a focused total return capital allocation strategy.
Cash Flow & Liquidity
AT&T generated $5,732 million of cash from operations in the quarter compared with $9,927 million in the prior-year period. Free cash flow at quarter end was $733 million compared with $4,204 million in the year-ago period. As of Mar 31, 2022, AT&T had $38,565 million of cash and cash equivalents with long-term debt of $180,225 million. Net debt to adjusted EBITDA was about 3.42x.
Outlook
In order to upgrade its existing infrastructure facilities for 5G and fiber deployment, AT&T plans to invest $24 billion each in 2022 and 2023, and about $20 billion starting from 2024. As a standalone company, it intends to pay more than $8 billion in dividends to shareholders, which represents a payout of about 40% against the expected free cash flow of $20 billion in 2023. It further plans to reduce its net debt to adjusted EBITDA ratio to the 2.5 range by the end of 2023. AT&T is evolving its distribution channels for changing customer demands and emphasizing on self-installation and software-based platforms to redefine its business plans for the virus outbreak. 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.
A better-ranked stock in the broader industry is Sierra Wireless, Inc. , carrying a Zacks Rank #2 (Buy). It has a long-term earnings growth expectation of 12.5% and delivered an earnings surprise of 58%, on average, in the trailing four quarters.
Over the past year, Sierra Wireless has gained 18.3%. Earnings estimates for the current year for the stock have moved up 68.8% since April 2021. The company continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
Nokia Corporation (NOK - Free Report) , carrying a Zacks Rank #2, is another solid pick for investors. Earnings estimates for the current year for the stock have moved up 40% since April 2021.
Nokia pulled off a trailing four-quarter earnings surprise of 205.2%, on average. It has moved up 28.1% in the past year. Nokia is well-positioned for the ongoing technology cycle given the strength of its end-to-end portfolio. The company’s deal win rate is encouraging with notable successes in the key 5G markets of the United States and China.
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AT&T (T) Beats Q1 Earnings Estimates Despite Soft Revenues
AT&T Inc. (T - Free Report) reported mixed first-quarter 2022 results as healthy wireless traction 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 $4,762 million or 65 cents per share compared with $7,500 million or $1.02 per share in the year-ago quarter. The significant year-over-year decline was primarily attributable to lower revenues owing to the impact of divested businesses.
Excluding non-recurring items, adjusted earnings were 77 cents per share compared with 85 cents in the year-earlier quarter. Adjusted earnings for the first 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 13.3% year over year to $38,105 million, largely due to the divestment of the U.S. video business and Vrio, and lower revenues from Business Wireline services, partially offset by higher equipment sales within the Mobility business and growth in revenues within WarnerMedia. The top line, however, beat the consensus mark of $28,950 million.
Adjusted operating income for the quarter was $7,070 million compared with $8,853 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 18.6% and 20.1%. Adjusted EBITDA declined to $11,638 million from $13,531 million.
AT&T experienced a net increase in total wireless subscribers of 5.5 million to reach 207.3 million in service. The company witnessed solid subscriber momentum with more than 965,000 post-paid net additions and 113,000 prepaid phone net additions as work-from-home trend continued to gain in popularity. Postpaid churn was 0.94% compared with 0.93% in the year-ago quarter. Postpaid phone-only average revenue per user (ARPU) decreased 0.2% year over year to $54.00 due to promotional discounts.
Segmental Performance
Communications: Total segment operating revenues were up 2.5% to $28,876 million as decline in Business Wireline (down 6.7% to $5,640 million) was offset by a healthy gain in the Mobility business (up 5.5% to $20,075 million) and Consumer Wireline (up 2% to $3,161 million). Service revenues from the Mobility unit improved 4.8% to $14,724 million driven by solid subscriber gains, while equipment revenues improved 7.3% year over year to $5,351 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. 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 $7,029 million compared with $7,431 million in the year-ago quarter for respective operating margin of 24.3% and 26.4%. Adjusted EBITDA was $11,153 million compared with $11,485 million in the year-ago quarter.
WarnerMedia: Total segment revenues were $8,741 million, up 2.5% year over year with higher subscription and content revenues signifying partial recovery from the coronavirus-induced adversities exhibited in the prior-year quarter, partially offset by lower advertising revenues. Subscription revenues improved 4.4% to $3,997 million due to higher HBO Max and HBO subscribers (up 12.8 million year over year). Advertising revenues were down 3% to $1,685 million due to lower linear audiences. Content revenues increased 3.4% to $3,059 million owing to contribution from theatrical product sales and HBO Max licensing, partially offset by lower TV licensing. Operating income was down 32.7% to $1,319 million, as higher investments, programming costs and expenses in HBO Max were partially offset by higher revenues and cost-saving initiatives, for corresponding margin of 15.1%. Adjusted EBITDA was $1,446 million compared with $2,123 million in the prior-year quarter for respective margins of 16.5% and 24.9%. Global HBO and HBO Max subscribers were up to 76.8 million at the end of the quarter, while domestic subscriber base grew 4.4 million with ARPU of $11.24.
Latin America: Total operating revenues were $690 million, down 49.8% year over year, due to the divesture of Vrio. EBITDA declined to $59 million from $93 million in the year-ago quarter for respective margins of 8.6% and 6.8%.
Notable Quarter Developments
AT&T’s game-changing deal with Discovery, Inc. for the divesture of its WarnerMedia business neared completion in the first quarter. The merger was completed on Apr 8, 2022 with the formation of Warner Bros. Discovery, Inc. (WBD - Free Report) . The transaction aims to spin off the carrier’s media assets and merge them with the complementary assets of Discovery. The transaction is expected to enable the carrier to trim its huge debt burden and focus on core businesses. The separation of the media assets is likely to offer the company an opportunity to better align its communications business with a focused total return capital allocation strategy.
Cash Flow & Liquidity
AT&T generated $5,732 million of cash from operations in the quarter compared with $9,927 million in the prior-year period. Free cash flow at quarter end was $733 million compared with $4,204 million in the year-ago period. As of Mar 31, 2022, AT&T had $38,565 million of cash and cash equivalents with long-term debt of $180,225 million. Net debt to adjusted EBITDA was about 3.42x.
Outlook
In order to upgrade its existing infrastructure facilities for 5G and fiber deployment, AT&T plans to invest $24 billion each in 2022 and 2023, and about $20 billion starting from 2024. As a standalone company, it intends to pay more than $8 billion in dividends to shareholders, which represents a payout of about 40% against the expected free cash flow of $20 billion in 2023. It further plans to reduce its net debt to adjusted EBITDA ratio to the 2.5 range by the end of 2023. AT&T is evolving its distribution channels for changing customer demands and emphasizing on self-installation and software-based platforms to redefine its business plans for the virus outbreak. 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 #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Sell) stocks here.
A better-ranked stock in the broader industry is Sierra Wireless, Inc. , carrying a Zacks Rank #2 (Buy). It has a long-term earnings growth expectation of 12.5% and delivered an earnings surprise of 58%, on average, in the trailing four quarters.
Over the past year, Sierra Wireless has gained 18.3%. Earnings estimates for the current year for the stock have moved up 68.8% since April 2021. The company continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
Nokia Corporation (NOK - Free Report) , carrying a Zacks Rank #2, is another solid pick for investors. Earnings estimates for the current year for the stock have moved up 40% since April 2021.
Nokia pulled off a trailing four-quarter earnings surprise of 205.2%, on average. It has moved up 28.1% in the past year. Nokia is well-positioned for the ongoing technology cycle given the strength of its end-to-end portfolio. The company’s deal win rate is encouraging with notable successes in the key 5G markets of the United States and China.