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Earnings Results: AT&T stock declines after ‘mixed’ quarter, but key executive sees ‘thriving demand’

An earlier version of this report misstated AT&T’s postpaid net additions. It has been corrected.

A leaner AT&T Inc. topped revenue expectations Wednesday as the company continued to narrow its focus on its core strengths, but shares ended the day lower after the report.

The company generated net income of $5.0 billion, or 69 cents a share, in the fourth quarter. A year prior, it logged a net loss of $13.9 billion, or $1.95 a share, after recognizing impairment charges.

On an adjusted basis, AT&T T, -8.42% earned 78 cents a share in its latest quarter, up from 75 cents a year earlier, while analysts tracked by FactSet were expecting 76 cents a share.

AT&T’s quarterly revenue declined to $41.0 billion from $45.7 billion, whereas the FactSet consensus was for $40.3 billion in revenue. The drop in revenue reflected AT&T’s third-quarter divestiture of its U.S. video business and its fourth-quarter sale of its Vrio business in Latin America, as well as lower business wireless revenue, the company said in its release.

Citi analyst Michael Rollins called the results “mixed,” as AT&T’s adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) of $11.3 billion came in below the $12.2 billion that he was expecting.

“While 4Q results do not help the case to get back to mid-single digit Ebitda growth, we believe results and future priorities still leave the door open for solid execution on the top-line and room to improve its operating efficiency for Ebitda and [pro forma free-cash flow],” he wrote.

AT&T shares were off 8.4% in Wednesday’s session and logged their largest single-day percentage decline since March 20, 2020, when they lost 8.7%, according to Dow Jones Market Data.

The company’s results and comparisons can be a bit hard to parse, said MoffettNathanson analyst Craig Moffett, given the various ways in which AT&T is reshaping its business. Not only did the company recently divest Vrio and its U.S. video business, but it also plans to spin out its WarnerMedia business into an entity that’s combined with Discovery Inc. DISCA, -9.16%

While Moffett saw an “uninspiring picture of growth” when he backed out Vrio and WarnerMedia metrics, executives at AT&T were more upbeat about the company’s growth prospects.

“Not all our customers are on 4G even, not all are on 5G, not all are on the latest devices,” AT&T Communications Chief Executive Jeff McElfresh told MarketWatch, suggesting untapped opportunity. “With existing customers and new customers that join AT&T…I see thriving demand that I don’t think is going to subside.”

Several analysts have expressed concern recently about the outlook for wireless industry growth after a strong recent stretch, with Moffett highlighting that phone growth is significantly ahead of population growth.

See also: Verizon stock downgraded on fears of ‘even less competitive discipline’ in wireless industry

AT&T’s McElfresh, meanwhile, remained bullish on the industry outlook and AT&T’s positioning. Though he conceded that broader macroeconomic headwinds could temper growth for the wireless sector as well as other sectors, he didn’t see “anything specific to the wireless industry that might create headwinds.”

He further expressed “great confidence” that AT&T’s “disciplined approach of growing the wireless franchise back to a leadership position” would continue to succeed.

The company had 1.3 million postpaid net additions in the quarter, including 884,000 postpaid phone net additions. It also picked up 271,000 fiber subscribers and ended the year with 73.8 million HBO and HBO Max subscribers worldwide. These numbers were consistent with metrics that AT&T previously disclosed ahead of an investor conference earlier in January.

AT&T saw postpaid phone churn of 0.85% in the fourth quarter, compared with 0.76% a year prior.

Though churn was up slightly, McElfresh didn’t see “anything that gives us caution” in the metric and said that churn comparisons in the pandemic can be abnormal due to factors such as stimulus payments and a government program that encouraged carriers not to cut off service for people affected by the crisis who could no longer make bill payments.

MoffettNathanson’s Moffett pointed to the rise in churn in his note to clients, but he acknowledged that AT&T’s promotional strategy “hasn’t played out as negatively as we had feared.” Moffett noted that “relative to Verizon, which has at least tried to be less promotional, AT&T has grown subscribers faster and is now seeing faster Ebitda growth in their mobility segment.”

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For the full year, the telecommunications giant expects consolidated revenue growth in the low single digits relative to a 2021 revenue total of $153.2 billion that excluded the U.S. video and Latin America Vrio businesses that AT&T divested. Analysts surveyed by FactSet were predicting $156.3 billion in revenue, which would be up about 2% from the comparable 2021 metric AT&T provided.

AT&T also anticipates adjusted earnings per share of $3.10 to $3.15 for 2022, whereas analysts tracked by FactSet were projecting $3.16 in adjusted EPS. The company expects free-cash flow “in the $23 billion range,” while analysts were modeling $22.5 billion.

AT&T’s report follows one from Verizon Communications Inc. VZ, -3.55% a day earlier. Verizon offered a 2022 earnings outlook that exceeded the consensus view, but its report wasn’t enough to silence questions from some analysts about the future of industry growth.

The report also comes after the Federal Communications Commission recently released results from a key 5G spectrum auction. AT&T will spend $9.1 billion on spectrum it won at the auction, the largest sum of any bidder.

Shares of AT&T have lost 4.4% over the past three months, as the S&P 500 SPX, -0.15% has declined 4.9%.

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