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AT&T Inc. (T - Free Report) reported solid second-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 $4,751 million or 60 cents per share from continued operations compared with $5,969 million or 77 cents 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 65 cents per share compared with 73 cents in the year-earlier quarter. Adjusted earnings for the second quarter comfortably beat the Zacks Consensus Estimate of 60 cents.
Quarterly GAAP operating revenues decreased 17.1% year over year to $29,643 million, largely due to the divestment of the U.S. video business, WarnerMedia and Vrio, and lower revenues from Business Wireline services, partially offset by higher equipment sales within the Mobility business. The top line, however, beat the consensus mark of $29,318 million.
Adjusted operating income for the quarter was $5,897 million compared with $7,530 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 19.9% and 21.1%. Adjusted EBITDA declined to $10,330 million from $11,931 million.
AT&T witnessed solid subscriber momentum with more than 1,058,000 post-paid net additions and 196,000 prepaid phone net additions as work-from-home trend continued to gain in popularity. This included 813,000 postpaid wireless phone additions. Postpaid churn was 0.93% compared with 0.87% in the year-ago quarter. Postpaid phone-only average revenue per user (ARPU) increased 1.1% year over year to $54.81 due to improved international roaming and shift to higher-priced unlimited plans. AT&T has reached its target of covering 70 million people with mid-band 5G spectrum ahead of its set deadline and currently expects to reach the 100 million mark by the end of year.
Segmental Performance
Communications: Total segment operating revenues were up 2% to $28,695 million as decline in Business Wireline (down 7.6% to $5,595 million) was offset by a healthy gain in the Mobility business (up 5.2% to $19,926 million) and Consumer Wireline (up 1.1% to $3,174 million). Service revenues from the Mobility unit improved 4.6% to $15,004 million driven by solid subscriber gains, while equipment revenues improved 7.2% year over year to $4,922 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 316,000 and has the ability to serve 18 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 $7,226 million compared with $7,384 million in the year-ago quarter for respective operating margin of 25.2% and 26.3%. Adjusted EBITDA was $11,341 million compared with $11,469 million in the year-ago quarter.
Latin America: Total operating revenues were $808 million, up 17.4% year over year, due to growth in service revenues. EBITDA improved to $87 million from $21 million in the year-ago quarter for respective margins of 10.8% and 3.1%.
Notable Quarter Developments
AT&T’s game-changing deal with Discovery, Inc for the divesture of its WarnerMedia business was completed in the second quarter. The merger was completed on Apr 8, 2022 with the formation of Warner Bros. Discovery, Inc. (WBD - Free Report) . The transaction spins off the carrier’s media assets and merges 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 $15,370 million of cash from operations in the first six months of 2022 compared with $19,783 million in the prior-year period. Free cash flow at quarter end was $1,384 million compared with $5,167 million in the year-ago period, bringing the tally for the first half of 2022 and 2021 at $4,195 million and $9,208 million, respectively. As of Jun 30, 2022, AT&T had $4,018 million of cash and cash equivalents with long-term debt of $129,747 million. Net debt to adjusted EBITDA was about 3.23x.
Outlook
As a standalone company, AT&T expects wireless service revenues to grow 4.5%-5% in 2022 while broadband revenue is likely to grow 6% year over year. Adjusted earnings are likely to be in the range of $2.42 to $2.46 per share, 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.
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 15% and delivered an earnings surprise of 223.7%, on average, in the trailing four quarters.
Over the past year, the stock has gained 40.4%. Earnings estimates for the current year have moved up 616.7% since July 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 15.7% upward since July 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 17.4%, on average. It has soared 158.8% in the past two years.
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AT&T (T) Beats Q2 Earnings Estimates on 5G & Fiber Strength
AT&T Inc. (T - Free Report) reported solid second-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 $4,751 million or 60 cents per share from continued operations compared with $5,969 million or 77 cents 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 65 cents per share compared with 73 cents in the year-earlier quarter. Adjusted earnings for the second quarter comfortably beat the Zacks Consensus Estimate of 60 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 17.1% year over year to $29,643 million, largely due to the divestment of the U.S. video business, WarnerMedia and Vrio, and lower revenues from Business Wireline services, partially offset by higher equipment sales within the Mobility business. The top line, however, beat the consensus mark of $29,318 million.
Adjusted operating income for the quarter was $5,897 million compared with $7,530 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 19.9% and 21.1%. Adjusted EBITDA declined to $10,330 million from $11,931 million.
AT&T witnessed solid subscriber momentum with more than 1,058,000 post-paid net additions and 196,000 prepaid phone net additions as work-from-home trend continued to gain in popularity. This included 813,000 postpaid wireless phone additions. Postpaid churn was 0.93% compared with 0.87% in the year-ago quarter. Postpaid phone-only average revenue per user (ARPU) increased 1.1% year over year to $54.81 due to improved international roaming and shift to higher-priced unlimited plans. AT&T has reached its target of covering 70 million people with mid-band 5G spectrum ahead of its set deadline and currently expects to reach the 100 million mark by the end of year.
Segmental Performance
Communications: Total segment operating revenues were up 2% to $28,695 million as decline in Business Wireline (down 7.6% to $5,595 million) was offset by a healthy gain in the Mobility business (up 5.2% to $19,926 million) and Consumer Wireline (up 1.1% to $3,174 million). Service revenues from the Mobility unit improved 4.6% to $15,004 million driven by solid subscriber gains, while equipment revenues improved 7.2% year over year to $4,922 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 316,000 and has the ability to serve 18 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 $7,226 million compared with $7,384 million in the year-ago quarter for respective operating margin of 25.2% and 26.3%. Adjusted EBITDA was $11,341 million compared with $11,469 million in the year-ago quarter.
Latin America: Total operating revenues were $808 million, up 17.4% year over year, due to growth in service revenues. EBITDA improved to $87 million from $21 million in the year-ago quarter for respective margins of 10.8% and 3.1%.
Notable Quarter Developments
AT&T’s game-changing deal with Discovery, Inc for the divesture of its WarnerMedia business was completed in the second quarter. The merger was completed on Apr 8, 2022 with the formation of Warner Bros. Discovery, Inc. (WBD - Free Report) . The transaction spins off the carrier’s media assets and merges 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 $15,370 million of cash from operations in the first six months of 2022 compared with $19,783 million in the prior-year period. Free cash flow at quarter end was $1,384 million compared with $5,167 million in the year-ago period, bringing the tally for the first half of 2022 and 2021 at $4,195 million and $9,208 million, respectively. As of Jun 30, 2022, AT&T had $4,018 million of cash and cash equivalents with long-term debt of $129,747 million. Net debt to adjusted EBITDA was about 3.23x.
Outlook
As a standalone company, AT&T expects wireless service revenues to grow 4.5%-5% in 2022 while broadband revenue is likely to grow 6% year over year. Adjusted earnings are likely to be in the range of $2.42 to $2.46 per share, 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). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 15% and delivered an earnings surprise of 223.7%, on average, in the trailing four quarters.
Over the past year, the stock has gained 40.4%. Earnings estimates for the current year have moved up 616.7% since July 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.
Aviat Networks, Inc. (AVNW - Free Report) sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised 15.7% upward since July 2021.
Aviat Networks pulled off a trailing four-quarter earnings surprise of 17.4%, on average. It has soared 158.8% in the past two years.