Telecommunications giant AT&T (T 1.21%) reported its third-quarter earnings on Wednesday, Oct. 23, which showed adjusted earnings per share (EPS) of $0.60, beating analysts' consensus estimates of $0.57. However, operating revenue fell short of estimates, coming in at $30.2 billion compared to the expected $30.45 billion.
Despite the revenue miss, AT&T managed a stable quarter, with strengths in its Mobility and Consumer Wireline segments countered by challenges in its Business Wireline unit.
| Metric | Q3 2024 Result | Analyst Estimate | Q3 2023 Result | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $0.60 | $0.57 | $0.64 | (6.3%) |
| Operating revenue | $30.2 billion | $30.45 billion | $30.4 billion | (0.7%) |
| Free cash flow | $5.1 billion | n/a | $5.2 billion | (2%) |
| Postpaid wireless subscriber additions | 403,000 | 435,000 | 468,000 | (14%) |
| Net fiber subscriber additions | 226,000 | n/a | 296,000 | (24%) |
Source: AT&T. Note: Analyst estimates for the quarter provided by FactSet. YOY = Year over year.
AT&T's Business Overview
AT&T, a major telecommunications provider in the U.S., offers services in landline and wireless communications, broadband, and digital entertainment. Its strategy revolves around expanding its 5G and fiber networks to cater to the increasing demand for high-speed connectivity.
Recently, the company focused on expanding its Mobility segment, providing robust wireless coverage and investing in network upgrades. Significant emphasis has been placed on 5G and fiber network expansion as AT&T seeks to enhance its infrastructure and better meet consumer needs. Key success factors include maintaining customer satisfaction and technological innovation to stay ahead of competitors.
Q3 Achievements and Challenges
Mobility Segment Growth: The Mobility segment, which includes wireless communication services, continues to perform well. Revenue grew 4% year over year to $16.5 billion, bolstered by a net addition of 403,000 postpaid phone subscribers. The segment's churn rate, a measure of customer retention, was 0.8%, leading the industry and showcasing its strength in customer loyalty. The expansion of 5G services contributed to its performance. However, revenue from Mobility equipment saw pressure from market saturation, reflecting broader industry challenges.
Consumer and Business Wireline: Consumer Wireline saw improved revenue, up 2.6%, fueled by fiber growth. Broadband net additions supported this segment for the fifth consecutive quarter. Meanwhile, Business Wireline revenue fell sharply, down by 11.8% largely due to legacy services' decline, underscoring the need for shifts toward modern offerings and infrastructure renewal.
The non-cash goodwill impairment of $4.4 billion within Business Wireline impacted operating income while illustrating the transformation challenges AT&T faces. This impairment signals potential hurdles in pivoting away from underperforming legacy services.
Financial Discipline and Transformation Efforts: AT&T's adjusted EPS to $0.60, which exceeded expectations, suggests the company is still maintaining financial discipline. However, total operating expenses rose due to the already-mentioned impairment, representing a strategic challenge. AT&T maintained its dividend at $0.2775 per share for the quarter, emphasizing consistency in shareholder returns despite sector challenges.
Future Outlook and Strategic Direction
Looking ahead, AT&T management reiterated its full-year guidance, expecting approximately 3% growth in wireless service revenue and 7%-plus in broadband revenue. It aims to maintain a net debt-to-adjusted EBITDA ratio of 2.5x by the first half of 2025, focusing on financial stability for future investments.
Investors should watch AT&T's ongoing investment in fiber, targeting over 30 million locations by the end of 2025. This expansion is pivotal as the company fortifies its infrastructure to support customer demand for high-speed data services. Additionally, strategic efforts to capitalize on 5G and fiber developments remain crucial for sustaining revenue growth in competitive markets.
