AT&T (T) Beats Q4 Earnings Estimates on Wireless Traction

AT&T Inc. T reported relatively healthy fourth-quarter 2020 results with solid subscriber growth backed by a resilient business model and robust cash flow position driven by a diligent execution of operational plans. Despite coronavirus hitting top-line growth, both adjusted earnings and revenues beat the Zacks Consensus Estimate. The company expects to continue investing in key areas 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 loss of $13,883 million or loss of $1.95 per share against a net income of $2,394 million or 33 cents per share in the year-ago quarter. The year-over-year decline was primarily attributable to lower revenues and high asset impairment charges during the quarter. For full year 2020, AT&T recorded net loss of $5,176 million or loss of 75 cents per share against a net income of $13,903 million or $1.89 per share in 2019, owing to top-line contraction and high asset impairment charges.

Excluding non-recurring items, adjusted earnings were 75 cents per share compared with 89 cents in the year-earlier quarter. Adjusted earnings for the fourth 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 decreased 2.4% year over year to $45,691 million, largely due to lower revenues from legacy wireline services, lower advertising and content revenues from WarnerMedia, domestic video and adverse currency translation effects. Notably, AT&T had an estimated adverse impact of $2,480 million from coronavirus during the quarter. The top line, however, beat the consensus mark of $44,556 million. For full year 2020, GAAP operating revenues were down 5.2% year over year to $171,760 million.

Adjusted operating income for the quarter was $7,814 million compared with $9,188 million in the prior-year quarter owing to top-line contraction. This resulted in respective adjusted operating income margins of 17.1% and 19.6%. Adjusted EBITDA declined to $12,889 million from $14,365 million.

Despite the coronavirus-induced adversities, AT&T experienced a net increase in total wireless subscribers of 5.9 million to reach 182.6 million in service. The company witnessed solid subscriber momentum with more than 1.2 million net additions in phones, wearable and non-tablet computing devices, including 800,000 postpaid phone additions as work-from-home trend increased. Postpaid churn was 0.94% compared with 1.29% in the year-ago quarter with significant improvement in phone churn. Postpaid phone-only average revenue per user (ARPU) decreased 1.9% year over year to $54.46 on lower international roaming revenues.

Segmental Performance

Communications: Total segment operating revenues remained relatively flat at $36,722 million as decline in Video, Broadband and Business Wireline were offset by gain in the Mobility business. Service revenues from the Mobility unit were steady at $14,022 million as subscriber gains offset decline in international roaming revenues, while equipment revenues improved 28.3% year over year to $6,097 million driven by higher mix of high-priced smartphone sales and other postpaid devices. Revenues from Broadband business were down 1.4% to $3,116 million due to decline in legacy services, while that from Video decreased 11.2% to $7,168 million led by lower premium and OTT subscribers. Revenues from Business Wireline were down 4.1% to $6,319 million driven by decline in legacy products.

Segment operating income was $6,558 million compared with $7,511 million in the year-ago quarter for respective operating margin of 17.9% and 20.6%. Segment EBITDA was $11,145 million compared with $12,100 million in the year-ago quarter, for respective margins of 30.3% and 33.1%.

WarnerMedia: Total segment revenues were $8,554 million, down 9.5% year over year with decline across Warner Bros. and Turner, partially offset by an increase at Home Box Office. While HBO revenues improved due to higher domestic subscribers of HBO Max (up 7 million year over year), that from Turner and Warner Bros. were down due to lower advertising and content revenues and lower contribution from theatrical and television, respectively. Operating income was down 10.4% to $2,542 million, primarily due to higher investments, programming costs and expenses in HBO Max, for corresponding margin of 23.4%. Segment EBITDA was $2,719 million compared with $3,005 million in the prior-year quarter for respective margins of 31.8% a piece.

Latin America: Total operating revenues were $1,498 million, down 14.8% year over year, due to adverse foreign currency translation and challenging macroeconomic conditions arising from the coronavirus-induced turmoil. EBITDA decreased to $95 million from $205 million in the year-ago quarter for respective margins of 6.3% and 11.7%.

Cash Flow & Liquidity

AT&T generated $43,130 million of cash from operations in 2020 compared with $48,668 million in 2019. Free cash flow at quarter end was $7,690 million compared with $8,151 million in the year-ago period. As of Dec 31, 2020, AT&T had $9,740 million of cash and cash equivalents with long-term debt of $153,775 million compared with respective tallies of $12,130 million and $151,309 million in the prior-year period. Net debt to adjusted EBITDA was about 2.7x.

Moving Forward

For full year 2021, management expects free cash flow in the vicinity of $26 billion with a dividend payout in the high 50% bracket. Adjusted earnings are likely to remain stable compared with that of 2020 on revenue growth of around 1%. AT&T is evolving its distribution channels for changing customer demands and emphasizing on self-installation and software-based platforms to redefine its business plans for the virus outbreak. While optimizing operations, it is aiming to increase efficiencies to lower costs while focusing on 5G and fiber-based connectivity along with expanded reach of software-based entertainment platforms. At the same time, the company aims to reduce its debt burden by monetizing non-core assets.

Zacks Rank & Stocks to Consider

AT&T currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the broader industry are Gogo Inc. GOGO, Qualcomm Incorporated QCOM and Sonim Technologies, Inc. SONM, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gogo has a trailing four-quarter earnings surprise of 23.9%, on average.

Qualcomm has a long-term earnings growth expectation of 19.6%. It delivered a positive earnings surprise of 17.3%, on average, in the trailing four quarters.

Sonim has a trailing four-quarter earnings surprise of 2.2%, on average.

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