January 29, 2023

AT&T stock gains after earnings as company highlights growth and profits

Shares of AT&T Inc. were enjoying a sharp rally Wednesday after the company showed strong subscriber growth while also beating earnings expectations, helping to allay concerns in the wireless industry about the consequences of growth on profits.

AT&T
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+5.87%

saw 656,000 postpaid phone net additions during the quarter, beating the 645,000 FactSet consensus and bringing its 2022 haul to almost 2.9 million. The company also reported 280,000 net additions for its fiber business.

After adjustments for asset impairments and other items, AT&T earned 61 cents a share from continuing operations, compared with the 56 cents a share in earnings that AT&T saw from continuing operations for its standalone business a year earlier. The standalone metric accounts for changes in AT&T’s business over the past year, namely its spinoff of the WarnerMedia business, which is now part of the new Warner Bros. Discovery Inc.
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+5.57%

Analysts tracked by FactSet were modeling 57 cents in earnings per share.

“We’re operating a streamlined and return-focused business with an improved profit trajectory that’s committed to generating sustained cash earnings growth while delivering an attractive dividend,” Chief Executive John Stankey said on the company’s earnings call.

He added that AT&T’s “growth was not only robust but profitable with 2022 being the most profitable year ever for our mobility business.”

The stock was up more than 6% in afternoon trading Wednesday.

The company is “likely taking market share in wireless, and it is managing the cost of wireless promotions as wireless profit margin (operating profit as a percentage of revenue) was up year-over-year,” Edward Jones analyst Dave Heger wrote after the report.

AT&T’s Jenifer Robertson, the company’s executive vice president and general manager for mass markets, told MarketWatch that the company continues to see benefits from its more simplified approach to wireless plans and pricing. The company has “simple offers that frontline teams can understand,” and it’s been able to execute on that strategy while staying “disciplined on the spend,” she said.

The company has rethought its distribution strategy and considered how it could better cater to the ways consumers buy phones, Robertson continued. In addition to letting people purchase phones in-store or have them shipped to their homes, the company has a service in some markets through which consumers can have their phones delivered by a real human, who can also set up the phone and transfer data from an older device.

The efforts reflect a “two-and-a-half-year journey on reestablishing and increasing the trust that we have with our customers,” she noted.

AT&T’s outlook was a major focal point ahead of the report, and Wolfe Research analyst Peter Supino commented in a note to clients that the forecast and results “should be enough to satisfy the bulls.”

For the full year, AT&T anticipates wireless service revenue growth of at least 4%, as well as growth in adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) of at least 3%.

The company is targeting free-cash flow of $16 billion or more. The FactSet consensus was for $16.2 billion.

AT&T also anticipates adjusted earnings per share of $2.35 to $2.45 for the full year, including a negative impact of 25 cents from higher non-cash pension costs. The FactSet consensus was $2.53.

Citi Research analyst Michael Rollins wrote that “the guidance reset for 2023 should be a welcome update and support some upside for the shares over the near-term when combined with the underlying 4Q performance.”

For the latest quarter, the company posted a loss from continuing operations of $23.1 billion, or $3.20 a share, whereas it earned $5.2 billion, or 66 cents a share, a year earlier. The loss includes $3.57 cents a share of non-cash charges related to the company’s annual goodwill assessment, which this year considered how rising rates are impacting some intangible assets.

Revenue inched up to $31.3 billion from $31.1 billion a year before, while the FactSet consensus was for $31.4 billion in quarterly revenue during the most recent period.

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