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Source: Seeking Alpha

AT&T reported better-than-expected second quarter earnings on Wednesday, driven by strong free cash flow that allowed the telecom giant to maintain its dividend. AT&T stock jumped over 1.5% in pre-market trading on the results.

The Dallas-based company posted adjusted earnings per share of $0.63, down 3% year-over-year but beating analyst estimates of $0.60. Total revenues rose 0.9% to $29.64 billion, just shy of expectations.

However, AT&T’s free cash flow of $4.2 billion for the quarter easily surpassed projections. This supported a dividend payout ratio of 49.5%, far lower than the nearly 150% ratio in Q2 2021.

“The direction we set three years ago is sound, and we’re on the right trajectory,” said CEO John Stankey. “We’re focused on growing the right way, adding profitable 5G and fiber customers.”

Key Quarterly Metrics Top Forecasts

In addition to strong free cash flow, AT&T saw growth in several key areas during Q2:

  • 326,000 postpaid phone net adds, ahead of guidance of 300,000
  • 789,000 fiber broadband net adds, leading to 7.6 million total fiber subscribers
  • contribution profit from wireless services up 5.8% year-over-year
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The company also continued reducing debt, bringing net debt down to $131.9 billion. AT&T aims to pay down an additional $15 billion in 2022.

“Our results give us full confidence in delivering our full-year financial guidance,” Stankey stated.

Network Investment Focuses on 5G, Fiber Buildout

AT&T has invested heavily in upgrading its wireless and wireline networks over the past year. In Q2, capital expenditures totaled $4.9 billion.

Key network initiatives included:

  • 5G deployment now covers over 255 million people
  • Fiber reach expanded by 3 million locations year-to-date
  • Mid-band 5G spectrum went live in over 40 major metro areas

This infrastructure buildout aims to support AT&T’s two primary growth engines — expanding its 5G mobility business and fiber broadband subscriber base.

AT&T Stock Rises On Upbeat Results, Guidance

Shares of AT&T jumped over 1.5% to $15.06 in pre-market trading following the earnings release. The stock had previously dropped to 30-year lows in July amid macroeconomic uncertainty.

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But with AT&T reiterating its full-year guidance, including:

  • Revenue growth of low single digits
  • Adjusted EPS growth of around 3%
  • Free cash flow of around $16 billion

Investors gained confidence the company can deliver stable performance for the remainder of 2022. This near-term clarity was welcomed despite longer-term concerns around AT&T’s legacy telecom business.

While demand for 5G and fiber broadband continues growing, AT&T still relies heavily on its traditional wireless, TV and landline services. This legacy exposure, along with heavy debt levels, has pressured the high-yielding dividend stock in 2022.

But with AT&T shares still offering an attractive 6.6% dividend yield, Wall Street has turned positive on the stock’s risk-reward following the Q2 beat.

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