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AT&T shares rose despite “disappointing” earnings outlook.
Justin Sullivan/Getty Images
AT&T
On Wednesday, it reported fourth-quarter results, continuing a string of solid performance for the company, but the merger limbo remains impossible to ignore for many investors watching the cheap stocks.
AT&T (ticker: T) showed growth in most of its divisions, leading the U.S. wireless industry in subscriber growth in 2021. But it’s also a company that’s still in the midst of a major portfolio realignment. with several key assets recently divested or on the way, and an impending dividend cut.
AT&T shares gave up an early gain on Wednesday, falling 1.4% to $26.11 in recent trading, compared with a 1.6% rise for the
S&P500.
AT&T stocks have lost about 4% after dividends in the past year, versus a 15% return for the index.
On Wednesday morning, AT&T reported 69 cents in earnings per share for the fourth quarter, or 78 cents per share after adjusting for one-time expenses and income. That compares to an adjusted 75 cents in the same period a year ago and Wall Street analysts’ consensus estimate of 76 cents. AT&T’s net income was $5 billion in the fourth quarter.
Revenue was $41.0 billion, surpassing the average forecast of $40.3 billion. That was a 10% year-over-year decline, but AT&T said that without the divestment of its DirecTV unit and other pay-TV businesses, revenues would have increased about 4% in the quarter.
AT&T’s adjusted earnings before interest, taxes, depreciation and amortization — or EBITDA — was about $1.2 billion below consensus, at $11.3 billion. That was a 12% year-over-year decline. The biggest contributor to that decline was WarnerMedia, which will soon be part of AT&T.
Free cash flow largely outperformed, coming in at $8.7 billion — an increase of nearly 14% — over the Wall Street consensus of $7.3 billion. However, about half of that difference came from capital expenditures, with AT&T spending $3.8 billion on capex in the quarter and analysts forecasting $4.4 billion.
AT&T’s full-year 2021 free cash flow reached $26.8 billion, for a 56% dividend payout ratio. The stock is currently yielding 7.9% a year, but the dividend will be cut when the WarnerMedia spin-off closes later this year.
AT&T announced its fourth quarter subscriber statistics in the first week of January. The company said it added net 884,000 postpaid phone subscribers — that is, those who pay a monthly bill — to end 2021 with 3.2 million for the full year. That’s more than rivals
Verizon Communications
(VZ) and
T-Mobile USA
(
TMUS
) each added. But AT&T’s average revenue per user fell slightly – the effect of promotions and discounts.
AT&T also said in early January that it had signed a net 271,000 fiber broadband subscribers in the fourth quarter and that HBO Max subscriptions reached 73.8 million — up from 4.4 million in three months and about 13 million in all of 2021. international launches and the staging of an ad-supported tier of HBO Max—plus new content such as a Game of Thrones prequel – should grow its subscriber base this year, management said on Wednesday. That comes like other streaming services like
Netflix
(
NFLX
) showed signs of slower growth.
Overall, it was a decent fourth quarter, continuing AT&T’s recent streak of solid operating performance. But that’s not all that matters to many investors looking at the cheap stocks these days. The company is still months away from its divorce from WarnerMedia, to exit a telecom-only AT&T focused on its 5G wireless and fiber broadband business. The specific mechanisms of that transaction — split or spin — are still a mystery, as is AT&T’s exact dividend policy after the deal. AT&T shareholders will own 71% of the combined WarnerMedia Discovery (
DISC
). It will leave a leaner AT&T better able to compete in fewer core markets, management says.
“We are simplifying and clarifying strategy for AT&T,” Chief Financial Officer Pascal Desroches said Barron’s on Wednesday. “We are going to grow customers, strengthen our balance sheet and be more effective and efficient in everything we do. And I think we deliver or surrender in every way.”
AT&T management said Wednesday it plans to hold an investor day in the first half of March to discuss more details ahead of the closing of the WarnerMedia transaction in the second quarter.
Including WarnerMedia and Xandr—AT&T’s digital advertising unit sold to
Microsoft
(MSFT) – management expects the company to earn $3.10 to $3.15 in adjusted earnings per share by 2022. That compares to analysts’ average forecast of $3.16 before Wednesday’s results and $3.40 in 2021. Management guidance also calls for “low-single digit” revenue growth of $153.2 billion in 2021, excluding divested activities such as DirecTV. Wall Street was looking for growth of about 2% against that measure in 2022.
It’s a confusing way to provide guidance for AT&T management, as it includes assets that will not be part of the company within months. March investor day may hold new targets, and it is likely that investors will not place too much weight on Wednesday’s relatively disappointing forecasts.
AT&T shares were up 7.6% this year from Tuesday’s close, as the
S&P 500
had fallen 8.6% and the
Dow Jones Industrial Average
5.6% had fallen.
Write Nicholas Jasinski at nicholas.jasinski@barrons.com
.