AT&T Q1 Earnings Beat Estimates, Revenues Remain Flat Y/Y

AT&T Inc. T reported modest first-quarter 2024 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.

Net Income

On a GAAP basis, AT&T reported net income of $3.4 billion or 47 cents per share compared to $4.2 billion or 57 cents per share in the year-ago quarter. The decline is primarily attributed to lower net sales and higher operating expenses year over year.
Excluding non-recurring items, adjusted earnings from continuing operations were 55 cents per share compared with 60 cents in the year-ago quarter. Adjusted earnings for the first quarter beat the Zacks Consensus Estimate of 53 cents.

Quarter Details

Quarterly GAAP operating revenues decreased marginally by 0.4% year over year to $30 billion, largely due to declining Mobility equipment sales and lower Business Wireline Revenues, mostly offset by higher Mobility Service, Mexico and Consumer Wireline revenues. The top line fell short of the consensus mark of $30.66 billion.
Adjusted operating income for the quarter was $6 billion compared with $5.97 billion in the prior-year quarter. This resulted in respective adjusted operating income margins of 20% and 19.8%. Adjusted EBITDA improved to $11 billion from $10.59 billion.
AT&T witnessed solid subscriber momentum with 389,000 post-paid net additions. This included 349,000 postpaid wireless phone additions. Postpaid churn was 0.89%, while postpaid phone-only average revenue per user (ARPU) increased 0.9% year over year to $55.57 due to improved international roaming, pricing actions and a transition to higher-priced unlimited plans.

Segmental Performance

Communications: Total segment operating revenues were $28.86 billion, down from $29.15 billion, as improvement in the Mobility business (marginally up 0.1% to $20.59 billion) and Consumer Wireline (up 3.4% to $3.35 billion) was offset by a decline in Business Wireline (down 7.8% to $4.91 billion). The segment revenues missed our estimates of $29.98 billion.
Service revenues from the Mobility unit improved 3.3% to $15.99 billion, driven by solid subscriber and postpaid ARPU gains, while equipment revenues decreased 9.8% year over year to $4.6 billion due to lower sales volume. Revenues from the Consumer Wireline business were up due to a gain in fiber broadband. AT&T recorded net fiber additions of 252,000 and has the ability to serve 27.1 million consumer and business customer locations in more than 100 U.S. metro areas with fiber.  AT&T Internet Air added 110,000 subscribers during the quarter.
Revenues from Business Wireline were down due to lower demand for legacy voice and data services as customers shifted to more advanced IP-based offerings. Segment operating income was flat at $6.74 billion, matching the year-earlier quarter's tally, with operating margins of 23.4% and 23.1%, respectively. Adjusted EBITDA was $11.48 billion compared with $11.03 billion in the year-ago quarter.
Latin America: Total operating revenues were $1.06 billion, up 20.4% year over year, due to growth in service and equipment revenues driven by favorable currency impact and higher sales. Adjusted EBITDA improved to $180 million from $145 million in the year-ago quarter for respective margins of 16.9% and 16.4%.

Cash Flow & Liquidity

In the first quarter of 2024, AT&T generated $7.55 billion of cash from operations compared with $6.68 billion in the prior-year period. Free cash flow at quarter end was $3.14 billion compared with $1 billion in the year-ago quarter. As of Mar 31, 2024, AT&T had $3.52 billion of cash and cash equivalents with long-term debt of $125.70 billion. Net debt to adjusted EBITDA was about 2.94X.

Guidance

While optimizing operations, AT&T is aiming to increase efficiencies to lower operating costs while focusing on 5G and fiber-based connectivity, along with an expanded reach of software-based entertainment platforms. For fiscal 2024, AT&T has reiterated its previous guidance. Wireless service revenues are likely to improve in the vicinity of 3%, while broadband revenues are anticipated to be up in excess of 7%.
Adjusted earnings are projected to be within $2.15 and $2.25 per share. Free cash flow in 2024 is expected to be within $17-$18 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 pass more than 30 million fiber locations by the end of 2025.

Zacks Rank & Stocks to Consider

AT&T currently has a Zacks Rank #3 (Hold).
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Pinterest is increasingly establishing a unique value proposition to advertisers that could provide a competitive advantage in the long haul. Through various innovations, it continues to dramatically improve the advertising platform, which appears to be one of the best ad platforms for consumer discretionary brands looking for ways to reach customers and stretch smaller ad budgets.
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NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company's focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. ANET, sporting a Zacks Rank #1 at present, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 13.3%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

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