AT&T's Stock Price Falls Following Q1 Cash Flow Concerns
Earnings season got off to a rocky start for the wireless industry Thursday as AT&T’s stock price tumbled more than 10% after free cash flow (FCF) came in below analyst expectations. AT&T was the first of the major carriers to report. AT&T also reported 424,000 postpaid phone net adds, marking 11 straight quarters with more than 400,000 adds. It reported 272,000 AT&T Fiber net adds. The stock closed at $17.65, down 10.4% for the day.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
AT&T reported $1 billion in FCF for Q1, compared with consensus expectations of $3.2 billion. CEO John Stankey told analysts cash flow will improve and Q1 is usually the most challenging quarter. The timing of device payments and incentive compensation in the quarter are seasonal, the company said. “We came in exactly as we anticipated,” Stankey said.
AT&T’s stock price similarly fell last summer, based on FCF concerns (see 2207210059). Verizon and T-Mobile report next week.
“Results were mostly in-line with expectations,” said New Street’s Jonathan Chaplin: “The one thing that wasn’t was FCF. The shortfall was in working capital. Management is confident that it will reverse, but didn’t give much helpful color on why it will reverse.”
Stankey highlighted subscriber growth. “I'm particularly proud of the quality of our subscriber additions,” he said: “Despite high promotional activity seen in parts of our industry, we continue to achieve consistently low churn levels while increasing the take rate of our high-value 5G and fiber plans.”
Among numbers released Thursday, AT&T had revenue of $30.1 billion versus $29.7 billion a year ago, with operating income of $6 billion, up from $5.5 billion. FirstNet connections hit 4.7 million. AT&T reported 40,000 prepaid phone net adds. Postpaid phone churn was 0.81% versus 0.79% in the year-ago quarter. Its mid-band 5G spectrum now covers more than 160 million POPs.
AT&T plans to “actively pursue” broadband, equity, access and deployment program funding “to support the transition of our wireline footprint,” Stankey said. The CEO said in January he expected limited BEAD spending this year (see 2301250059).
Stankey indicated an increased focus on fixed wireless access (FWA), a focus of the other major carriers. “We’re out in the market today,” he said: “We have a consumer product that’s there that we’ve recently brought into play. We’re in the process of scaling it. We are going to use it where we think we can offer a customer a better set of services than what they currently have.”
AT&T is testing the use of AI, in cooperation with NVIDIA, to improve fleet dispatch “so our field technicians can better serve customers,” Stankey said. “We're using AI to match customers with the right customer care support path, resulting in more effective issue resolution,” he said: “We think this is only the tip of the spear of what's possible.”
Economic concerns remain, Stankey said. “We started the year with the expectation that we'd be operating against a less-predictable macro backdrop,” he said: “This belief has proven true thus far. And what we're seeing is in line with the expectations we built into our guidance in January, including a moderation of growth for wireless services.”
MoffettNathanson’s Craig Moffett told investors AT&T faces challenges. “AT&T has declined to make fixed wireless a significant part of its offering, claiming that the economics and capacity considerations make it ill-suited as a long-term answer,” he said. “We’re inclined to agree, but if not FWA, what then? Their fiber footprint can’t expand much beyond what they’ve promised; indeed, we’re skeptical about the economics of getting even to that level.”