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AT&T Inc. (T - Free Report) reported solid first-quarter 2023 results as healthy wireless traction and customer additions were partially offset by lower demand for legacy voice and data services. The company recorded solid subscriber growth backed by a resilient business model and robust cash flow position driven by a diligent execution of operational plans. AT&T expects to continue investing in key areas of 5G and fiber and adjust its business according to the evolving market scenario to fuel long-term growth while maintaining a healthy dividend payment and actively pruning debt.
 

Net Income

On a GAAP basis, AT&T reported a net income of $4,176 million or 57 cents per share compared with $4,762 million or 65 cents per share in the year-ago quarter. The significant year-over-year decline, despite top-line growth, was primarily attributable to lower other income.

Excluding non-recurring items, adjusted earnings were 60 cents per share compared with 63 cents in the year-earlier quarter. Adjusted earnings for the first quarter beat the Zacks Consensus Estimate by a couple of cents.
 

AT&T Inc. Price, Consensus, and EPS Surprise

AT&T Inc. price-consensus-eps-surprise-chart | AT&T Inc. Quote
 

Quarter Details

Quarterly GAAP operating revenues increased 1.4% year over year to $30,139 million, largely due to higher Mobility, Mexico, and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services. The top line missed the consensus mark of $30,344 million.

Adjusted operating income for the quarter was $5,975 million compared with $5,755 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 19.8% and 19.4%. Adjusted EBITDA improved to $10,589 million from $10,190 million.

AT&T witnessed solid subscriber momentum with 524,000 post-paid net additions. This included 424,000 postpaid wireless phone additions. Postpaid churn was 0.99% compared with 0.94% in the year-ago quarter. The postpaid phone-only average revenue per user (ARPU) increased 2% year over year to $55.05 due to improved international roaming and a shift to higher-priced unlimited plans. AT&T is currently covering 160 million people with the mid-band 5G spectrum, while its nationwide 5G is reaching out to 290 million people.
 

Segmental Performance

Communications: Total segment operating revenues were up to $29,152 million from $28,876 million as a decline in Business Wireline (down 5.5% to $5,331 million) was offset by a gain in the Mobility business (up 2.5% to $20,582 million) and Consumer Wireline (up 2.5% to $3,239 million). Service revenues from the Mobility unit improved 5.2% to $15,483 million driven by solid subscriber gains, while equipment revenues declined 4.7% year over year to $5,099 million driven by lower volumes owing to the challenging macroeconomic environment. Revenues from the Consumer Wireline business were up due to a gain in fiber broadband. AT&T recorded net fiber additions of 272,000 and has the ability to serve 19.7 million consumers and more than 3 million business customer locations in more than 100 U.S. metro areas with fiber. Revenues from Business Wireline were down due to a decline in legacy products as customers shifted to more advanced IP-based offerings.

Segment operating income was $6,743 million compared with $6,487 million in the year-ago quarter for a respective operating margins of 23.1% and 22.5%. Adjusted EBITDA was $11,032 million compared with $10,611 million in the year-ago quarter.

Latin America: Total operating revenues were $883 million, up 28% year over year, due to growth in service and equipment revenues driven by favorable currency impact and higher sales. Adjusted EBITDA improved to $145 million from $59 million in the year-ago quarter for respective margins of 16.4% and 8.6%.
 

Cash Flow & Liquidity

AT&T generated $6,678 million of cash from operations in the quarter compared with $7,630 million in the prior-year period. Free cash flow at quarter end was $1,004 million compared with $2,811 million in the year-ago period. As of Mar 31, 2023, AT&T had $2,821 million of cash and cash equivalents with long-term debt of $123,727 million. Net debt to adjusted EBITDA was about 3.22x.
 

Moving Forward

While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs, while focusing on 5G and fiber-based connectivity along with the expanded reach of software-based entertainment platforms. Free cash flow in 2023 is expected to be in the vicinity of $16 billion due to cost savings. The company is also aiming to reduce its debt burden by monetizing non-core assets.
 

Zacks Rank & Stock to Consider

AT&T currently has a Zacks Rank #3 (Hold).

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