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AT&T Inc. (T - Free Report) reported relatively healthy third-quarter 2023 results as solid wireless traction and customer additions were partially offset by lower demand for legacy voice and data services. The company recorded strong 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 net income of $3,444 million or 48 cents per share compared with $5,977 million or 80 cents per share in the year-ago quarter. The significant year-over-year decline despite top-line growth was primarily attributable to higher operating expenses and non-recurring other income in the year-earlier quarter.

Excluding non-recurring items, adjusted earnings from continuing operations were 64 cents per share compared with 68 cents in the year-ago quarter. Adjusted earnings for the third quarter marginally beat the Zacks Consensus Estimate by a penny.
 

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% year over year to $30,350 million, largely due to higher Mobility, Mexico, and Consumer Wireline revenues, partially offset by lower revenues from Business Wireline services. The top line beat the consensus mark of $30,202 million.

Adjusted operating income for the quarter was $6,519 million compared with $6,216 million in the prior-year quarter. This resulted in respective adjusted operating income margins of 21.5% and 20.7%. Adjusted EBITDA improved to $11,203 million from $10,714 million.

AT&T witnessed solid subscriber momentum with 550,000 post-paid net additions. This included 468,000 postpaid wireless phone additions. Postpaid churn was 0.95% compared with 1.01% in the year-ago quarter. Postpaid phone-only average revenue per user (ARPU) increased 0.6% year over year to $55.99 due to improved international roaming, pricing actions, and transition to higher-priced unlimited plans. AT&T is currently covering 190 million people with mid-band 5G spectrum and remains on track to reach out to more than 200 million people by the end of 2023.
 

Segmental Performance

Communications: Total segment operating revenues were up to $29,244 million from $29,131 million as decline in Business Wireline (down 7.9% to $5,221 million) was offset by a gain in the Mobility business (up 2% to $20,692 million) and Consumer Wireline (up 4.6% to $3,331 million). However, the segment revenues fell short of our estimates of $29,590.7 million.

Service revenues from the Mobility unit improved 3.7% to $15,908 million driven by solid subscriber gains, while equipment revenues declined 3.2% year over year to $4,784 million driven by lower volumes owing to a challenging macroeconomic environment. Revenues from Consumer Wireline business were up due to gain in fiber broadband. AT&T recorded net fiber additions of 296,000 and has the ability to serve 20.7 million consumer and about 3.3 million business customer locations in more than 100 U.S. metro areas with fiber. Revenues from Business Wireline were down due to decline in legacy products as customers shifted to more advanced IP-based offerings.

Segment operating income was $7,273 million compared with $6,989 million in the year-ago quarter for respective operating margin of 24.9% and 24%. Adjusted EBITDA was $11,623 million compared with $11,173 million in the year-ago quarter.

Latin America: Total operating revenues were $992 million, up 26.4% year over year, due to growth in service and equipment revenues driven by favorable currency impact and higher sales. Adjusted EBITDA improved to $155 million from $101 million in the year-ago quarter for respective margins of 15.6% and 12.9%.
 

Cash Flow & Liquidity

AT&T generated $26,936 million of cash from operations in the first nine months of 2023 compared with $25,464 million in the prior-year period. Free cash flow at quarter end was $5,182 million compared with $3,840 million in the year-ago period, bringing the respective tallies for the first nine months of 2023 and 2022 to $10,395 and $8,035. As of Sep 30, 2023, AT&T had $7,540 million of cash and cash equivalents with long-term debt of $126,701 million. Net debt to adjusted EBITDA was about 2.99x.
 

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 expanded reach of software-based entertainment platforms. Free cash flow in 2023 is expected to be in the vicinity of $16.5 billion due to cost savings. The company is also aiming to reduce its debt burden by monetizing non-core assets. AT&T firmly remains on track to reach 200 million people with mid-band 5G by the end of 2023 and pass more than 30 million fiber locations by the end of 2025.
 

Zacks Rank & Stock to Consider

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

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