AT&T earnings: what to watch out for?

Key learning points

  • Analysts estimate adjusted earnings per share at $0.80 versus $0.83 in the second quarter of 2020.
  • The number of new subscribers to postpaid telephones is expected to increase, a dramatic reversal from the sharp decline in the same quarter last year.
  • Revenue is expected to grow modestly as the company divests assets and focuses on its core telecom business.

AT&T Inc. (T) is pursuing a broad strategy to relieve businesses outside of its core wireless and broadband communications business. The company is divesting its DirecTV satellite business, selling its Network Cloud technology and is reportedly in talks to sell its Xandr advertising business. But AT&T’s biggest move is the planned spin-off of its giant news and entertainment company, WarnerMedia, in a merger with Discovery Inc. (DISC). If approved, that deal would be worth $43 billion.

Investors will consider both the long-term impact of AT&T’s divestment strategy and the immediate performance of its core businesses when it reports earnings for the second quarter of 2021 on July 22, 2021. Analysts expect a slight decline in adjusted earnings per share (EPS), despite a modest increase in sales compared to the same quarter last year.

Investors will also want to pay attention to another important statistic: AT&T’s additional postpaid phone subscriber numbers, which represents the number of new postpaid phone subscriptions minus the number of canceled subscriptions. Analysts expect a net increase in these subscriptions compared to a sharp net decrease in the same period three months a year ago.

AT&T stocks have lagged the broader market over the past year. The stock’s moves have been extremely volatile, but the overall trend since last summer has been sideways. Shares of AT&T have delivered a total return of 0.4% in the past year, well below the 33.0% total return of the S&P 500.

Source: TradingView.

AT&T Earnings History

AT&T reported Q1 FY 2021 earnings and revenue that exceeded analyst expectations. Adjusted EPS was up 1.9%, breaking a string of four consecutive quarters of year-over-year (YOY) declines. Sales grew 2.7% compared to the same quarter a year ago, the first increase after six consecutive quarters of declining sales. The company said increased sales in its mobility and WarnerMedia businesses more than offset declines in its domestic video, fixed-line business and Latin American businesses.

AT&T also posted earnings and revenue beats in the fourth quarter of FY 2020. However, adjusted EPS declined 15.9% compared to the same quarter a year ago, marking the fourth consecutive quarter of declines. Sales fell 2.4%, the slowest decline in the past six quarters. The decline in sales was primarily due to AT&T’s domestic video, Warner Bros. TV and theater products, legacy wireline services and Latin American operations. These declines were only partially offset by the company’s domestic wireless revenues, primarily from equipment sales.

Analysts expect mixed results in the second quarter of 2021. They estimate adjusted earnings per share will decline by 3.2% compared to the same period three months ago. However, sales are expected to grow a modest 4.3%, accelerating slightly compared to Q1 growth, which was the first YOY gain since Q2 FY 2019. For the full year of FY 2021, analysts are forecasting near-flat growth. They estimate adjusted earnings per share will increase by 0.3% and revenue by 0.2%. Despite those anemia numbers, that growth would still be a significant improvement from last year’s declines of 10.9% and 5.2%, respectively.

AT&T key stats
Estimate for Q2 2021 (FY) 2nd quarter 2020 (FY) Q2 2019 (FY)
Adjusted Earnings Per Share ($) 0.80 0.83 0.89
Yield ($B) 42.7 41.0 45.0
Additional Postpaid Phone Subscribers (in thousands) 258.3 -151.0 74.0

Source: Visible alpha

The most important statistic

As noted above, investors will focus on AT&T’s additional postpaid phone subscribers, which the company calls “postpaid phone net add-ons.” Postpaid plans differ from prepaid plans in that payments at the end of a period are made based on usage. This important statistic indicates the net difference between the number of new postpaid telephone subscriptions and the number of subscriptions that have been terminated. As long as this stat is positive, it means AT&T is replenishing its total number of postpaid phone plans. Increasing phone subscriptions will be especially important if the pending merger between WarnerMedia and Discovery is approved. WarnerMedia accounted for approximately 18% of the company’s annual revenue in FY 2020. If it is spun off, other areas of the business, such as prepaid phone plans, will become increasingly important for revenue generation.

Since AT&T lost 318,000 net postpaid phone subscribers in FY 2017, AT&T has consistently increased its net new additions year-over-year. Last year, the company added nearly 1.5 million net new postpaid phone subscriptions, primarily driven by 645,000 and 800,000 net additions in Q3 and Q4, respectively. In the first quarter of 2021, AT&T added 595,000 postpaid phone subscribers, more than double analyst estimates. For Q2 FY 2021, analysts expect more net additions. That number is estimated to be less than in the first quarter, but still a significant reversal from net churn in last year’s quarter. For the full year 2021, analysts forecast approximately 1.6 million additional postpaid phone subscribers, which would be the most net gains in at least five years.