is doing well with subscriber growth and sales of its non-core assets. In a few announcements, the media and telecom giant reported a robust second quarter of customer growth, unveiling its latest divestment and adding higher earnings expectations for the current year.
But dampening that good news on Thursday was a billion-dollar asset write-off and the fact that WarnerMedia and HBO Max had the strongest performance against expectations in the quarter. AT&T is in the process of divesting both companies.
AT&T stock (ticker: T) was flat at $27.90 Thursday morning, signaling a gain in premarket trading. rival
Communications (VZ) reported a similar beat-and-raise quarter on Wednesday, pushing the stock up modestly.
AT&T said it made about $1.5 billion, or 21 cents a share, in the second quarter. A $4.6 billion write-off of the value of the company’s Latin American operations deducted 52 cents per share from earnings, while AT&T says other costs related to merger amortization and pension liabilities added an additional 16 cents. subtracted. The company’s adjusted earnings per share came in at 89 cents, up 7% from a year earlier and 10 cents higher than the average estimate by Wall Street analysts.
Revenue was $44 billion, an increase of nearly 8% and about $1.4 billion more than analysts had expected. Most of that revenue increase came from WarnerMedia, which reported continued growth at HBO Max and a rebound in advertising from last year’s pandemic-depressing second quarter.
AT&T added nearly 1.2 million postpaid wireless subscribers — customers who pay a monthly bill — including 789,000 postpaid phones, a closely watched statistic for wireless companies. The company’s churn rate, the percentage of customers who cancel each month, fell to 0.69%, which is the lowest quarterly churn on record, according to AT&T. AT&T also added 297,000 net prepaid subscribers in the quarter, including 174,000 phones. The growth of both postpaid and prepaid was higher than expected.
AT&T has been aggressive in pricing in 2021, offering both new and existing customers deals on new phones and other discounts or benefits. This is more apparent from the number of subscribers than from the profit. AT&T has now added about 2.8 million postpaid phones in the past four quarters, recovering from a decline at the start of the pandemic last spring. Wireless revenues grew more than 10% year-over-year in the second quarter, but profit margins and average revenue per user declined.
The other major branch of AT&T’s telecoms business is broadband Internet service, which it has expanded in more areas with new fiber optic cables. The company added 246,000 fiber Internet subscribers in the past quarter. CFO Pascal Desroches said growth in fiber optic cable-based services outpaced declines in slower, older technologies in the quarter.
Those wireless and wireline companies will still be part of AT&T a year from now. The company is in the midst of a purge of divisions that have nothing to do with its core mission of raising money to pay off debt and investing in telecom infrastructure.
That includes the spinoff of DirecTV satellite assets in a deal with private equity firm TPG that management says should close in the coming weeks. AT&T gets quarterly dividend payments from DirecTV.
Also in the pipeline is the WarnerMedia spin-off, which will be merged with Discovery (DISCA). A planned dividend cut as part of the latest transaction hit AT&T stock earlier this year. AT&T completed the sale of its Puerto Rican wireless and fixed operations late last year.
AT&T said Wednesday night: that it has agreed to sell Vrio, its Latin American satellite TV business, to Grupo Werthein in Argentina, for an enterprise value of $500 million, according to an AT&T spokesperson. That includes more than 10 million subscribers in 11 countries. Concurrent with the sale, AT&T wrote off the value of Vrio on its balance sheet by $4.6 billion, which is a non-cash accounting expense.
The return of sporting events and other programs helped WarnerMedia’s second-quarter ad revenue grow nearly 50% year-over-year. HBO Max and HBO combined had 67.5 million subscribers worldwide at the end of the period, up from 3.6 million in the three months. That increased direct-to-consumer revenue by nearly 40% year over year. WarnerMedia’s total revenue was $8.8 billion in the quarter, up 31%.
But costs rose faster, with the return of sports rights payments and heavy investment in content for HBO Max. WarnerMedia’s earnings before interest, taxes, depreciation and amortization, or Ebitda, were about $1.9 billion last quarter, down 10% from a year ago. Discovery will release its second quarter results on August 3.
AT&T said Thursday it now expects to have between 70 million and 73 million HBO Max and HBO subscribers by the end of this year, up from 67 million to 70 million earlier. Management also raised its overall revenue and earnings forecast for 2021. AT&T now expects to increase sales by 2% to 3% and increase adjusted earnings per share by a percentage in the low-to-mid single digits. That’s ahead of the 1% revenue growth and “stable” earnings per share management forecast three months ago.
AT&T also expects free cash flow of approximately $27 billion – $1 billion more than before – and $17 billion in capital expenditures in 2021. AT&T closed the second quarter with leverage of 3.2 times net debt to adjusted EBITDA .
As of Wednesday’s close, AT&T stock had returned about 2%, including dividends in 2021, versus a 17% return for the
T-Mobile USA (TMUS)
stocks had gained 7% this year and Verizon had lost 2% after dividends.
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