AT&T Q3 2024 Earnings: Mixed Results Amidst 5G and Fiber Growth
AT&T Inc. (T) reported its third-quarter 2024 earnings on Wednesday, revealing a mixed bag of results. While the company showcased continued momentum in its 5G and fiber subscriber growth, overall operating revenues fell slightly short of analyst expectations, primarily due to a slowdown in smartphone sales. Despite a marginal revenue miss, the company exceeded adjusted earnings per share (EPS) estimates, leading to a positive stock market reaction. This complex financial picture underscores the challenges and opportunities facing AT&T as it navigates the evolving telecommunications landscape.
Key Takeaways: What You Need to Know
- Mixed Revenue Picture: AT&T’s Q3 operating revenues of $30.21 billion missed analyst estimates by a small margin, hampered by sluggish smartphone sales.
- EPS Beat: Despite the revenue miss, AT&T’s adjusted EPS of $0.60 surpassed the anticipated $0.57, bolstering investor confidence.
- Strong 5G and Fiber Growth: The company demonstrated continued success in expanding its 5G and fiber subscriber base, highlighting the potential for future revenue growth.
- Positive Stock Market Reaction: Following the earnings announcement, AT&T’s stock price experienced a notable increase.
- Revised Outlook: AT&T maintained its full-year outlook, projecting continued growth in key areas.
Detailed Financial Performance
AT&T’s Q3 2024 operating revenues totaled $30.21 billion, representing a slight 0.5% year-over-year decrease. This shortfall compared to the anticipated $30.44 billion consensus amongst analysts is largely attributed to weakness in the equipment sales market, driven by a slower-than-expected recovery in smartphone purchases, as highlighted by Bloomberg’s reporting. “The slow recovery in smartphone purchases affected the topline performance,” stated Bloomberg. However, the company’s adjusted EPS of $0.60 outperformed the projected $0.57, suggesting efficient cost management and profitability despite the revenue challenges.
Segment-Specific Performance
The Mobility segment delivered strong net additions, with 617,000 wireless net adds, including 429,000 postpaid phone net adds, exceeding the consensus estimate of 394,600. Postpaid churn reduced to 0.93%, a slight improvement from 0.95% in the previous year, demonstrating improved customer retention. Prepaid churn stood at 2.73%, compared to 2.78% year-over-year, indicating some success in managing the prepaid subscriber base. Importantly, the postpaid phone-only average revenue per user (ARPU) increased by 1.9% year-over-year to $57.07, suggesting higher average spending from existing customers. The segment’s operating income increased by 3.5% year over year to $7.00 billion, with a margin of 33.3%, reflective of the overall strength and growth observed within this segment.
In the Consumer Wireline segment, AT&T reported solid progress in Fiber additions, although slightly below expectations. The company added 226,000 AT&T Fiber net subscribers, slightly lower than the expected 265,400, attributed primarily to adverse weather and work conditions in the Southeast region. As for the AT&T Internet Air service, they recorded 135,000 net additions compared to a consensus estimate of 147,000, suggesting room for improvement in the strategic execution in these areas. The segment notably saw increased operating margin at 5.7% in comparison to 4.8% in the prior year’s quarter.
The Business Wireline segment performance, however, presented a contrasting picture. The segment’s operating margin significantly declined to (0.9)% compared to 6.7% a year prior. This negative margin was notably impacted by a $4.4 billion non-cash goodwill impairment charge, reflecting challenges in this market segment and the need for strategic adjustments to address this performance disparity. While not reflective of operational profitability, this impairment charge heavily influenced the overall net income, which declined sharply.
Key Financial Metrics
AT&T’s adjusted EBITDA reached $11.59 billion, exceeding the prior year’s $11.20billion. A substantial $5.3 billion was invested in capital expenditures (Capex). Net income took a significant dip to $0.1 billion compared to $3.8 billion in Q3 2023, principally due to the aforementioned significant non-cash impairment charge impacting the Business Wireline segment, highlighting the importance of segment-specific analysis in comprehensive financial assessments.
Operating cash flow slightly decreased to $10.24 billion from $10.34 billion a year prior, while free cash flow also experienced a minor drop to $5.095 billion from $5.182 billion in 2023’s corresponding period, further suggesting a need for deeper analysis into key financial aspects of the business.
AT&T’s Outlook and Stock Performance
AT&T reiterated its full-year outlook, projecting continued growth in several key metrics, including 3% growth in wireless service revenue, greater than 7% growth in broadband revenue. Moreover, the company maintained its adjusted earnings per share (EPS) projection of $2.15 to $2.25 for the fiscal year 2024, which is just slightly below the consensus estimate of $2.20. This demonstrates the company’s confidence in its future performance, positioning it for long-term growth within the telecommunication industry.
The company also upheld its full-year adjusted EBITDA growth guidance in the 3% range and a free cash flow projection of $17 billion to $18 billion. These consistent projections offer investors further reassurance about the reliability of AT&T’s financial forecasts and potential returns on investment. Currently, AT&T maintains an attractive dividend yield of 6.10%, emphasizing its attractive profile to income-oriented investors. Higher free cash flows are likely to increase cash available for shareholder returns through increased stock buybacks and dividends.
Following the announcement, AT&T’s stock price (T) saw a positive reaction, increasing by 3.49% in premarket trading to $22.25. The market’s response suggests that the company’s surpassing of EPS expectations more than offset the slight revenue miss, highlighting the importance of examining all aspects of a financial release.