What happened

Shares of AT&T (NYSE:T) have dropped today, down by 6.3% as of 12:30 p.m. EDT, after the telecommunications and media giant reported third-quarter earnings. The results fell short of expectations, and this was the first full quarter after closing its contentious $85 billion acquisition of Time Warner in June, which had faced opposition from the Department of Justice.

So what

Total revenue in the third quarter rose 15% to $45.7 billion, with much of that growth attributable to the acquisition. Adjusted earnings per share came in at $0.90. Analysts had been modeling for $45.65 billion in sales and non-GAAP earnings per share of $0.94. AT&T's phone business was strong, gaining 550,000 phone net adds, of which 69,000 were valuable postpaid phone net adds. Postpaid phone churn was 0.93% in the third quarter.

AT&T retail store

Image source: AT&T.

The WarnerMedia segment, which includes valuable properties like HBO and Warner Bros., generated revenue of $8.2 billion. However, the company's satellite TV business performed poorly, losing 359,000 subscribers during the quarter. Those losses were only partially offset by AT&T's over-the-top (OTT) service, DIRECTV Now, which added 49,000 subscribers. In other words, AT&T is struggling to navigate the ongoing transition to OTT services, as cord-cutting continues unabated.

Now what

"I'm pleased with the progress we made on a number of fronts in the third quarter," CEO Randall Stephenson said in a statement. "Our U.S. wireless business is growing and it's the single biggest contributor to our earnings and cash flow. WarnerMedia was immediately accretive in its first full quarter, contributing 5 cents to EPS, and our free cash flow grew by double digits."

AT&T reaffirmed its guidance for 2018 that it issued in July, still expecting adjusted EPS for the year to be at the high end of the $3.50 range, with free cash flow expected at the high end of the $21 billion range. Net capital expenditures should be around $22 billion.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.