Please ignore this post. I put it here for myself because I own lots of AT&T shares which I'm holding for the rest of my life. I'm only interested in the dividend income.

AT&T Stock Rises as Continued DirecTV Subscriber Losses Don’t Hit Earnings

By Nicholas Jasinski

Updated July 24, 2019 10:27 am ET / Original July 24, 2019 8:33 am ET



AT&T posted second-quarter results Wednesday morning that met Wall Street estimates for earnings per share and revenue. The telecom and entertainment giant also raised its 2019 free cash-flow guidance despite enduring another quarter of large subscriber losses at its DirecTV service and expecting more this year. After dropping in pre-open trading, AT&T stock (ticker: T) has gained 2.4% to $32.87 at 10:24 a.m., versus the S&P 500, which is little changed.

The back story. AT&T’s strategy diverged from that of its main rival Verizon Communications (VZ) last year—the subject of a recent Barron’s cover story. AT&T took on significant debt to complete a $104 billion deal for Time Warner and acquire media assets, while Verizon has focused on its core wireless business. AT&T’s first major new venture to come from that takeover is a direct-to-consumer streaming service, HBO Max, which it revealed earlier this month.

AT&T stock had returned 18% this year, including dividends, through Tuesday’s close. That’s behind the S&P 500’s 21% return, and most telecom competitors’ stocks. T-Mobile US (TMUS), Sprint (S), and Verizon had returned 23%, 22%, and 1.8%, respectively, this year through Tuesday.

What’s new. Early Wednesday morning, AT&T reported 89 cents in adjusted earnings per share in the second quarter—matching analysts’ expectations to the penny and down two cents from the same period last year. Sales in the quarter were $45.0 billion, up 15%, and just ahead of the $44.9 billion that Wall Street analysts had been expecting. Net income was $3.7 billion.

AT&T’s DirecTV satellite TV service has been shedding subscribers in recent quarters, as consumer preferences shift to on-demand streaming viewing and promotional pricing periods end for millions of customers. In the second quarter, a net 778,000 customers canceled their DirecTV satellite or U-verse cable TV service, versus a consensus forecast for a loss of 631,700. That’s on top of a net 544,000 cancellations in the first quarter. AT&T warned on Wednesday that 1 million customers remain on promotional plans ending this year—and will see price increases—so cancellations will likely remain high.

AT&T did better on the wireless-subscriber front in the second quarter: The carrier added a net 72,000 phone subscribers, ahead of analysts’ forecast of a 19,600-customer loss.

AT&T’s two largest segments—the core Mobility wireless group and the internet and TV-focused Entertainment Group—saw operating income increase by 5% and 3%, respectively, in the second quarter from a year earlier while revenues remained more or less the same. Revenue at WarnerMedia—the home of Warner Bros., HBO, and Turner—grew 5.5%, while operating income climbed 11%. Business Wireline saw declines in both sales and operating income.

Moving forward. AT&T now expects to generate an extra $2 billion in free cash flow (cash from operating activities less capital expenditures) this year, at $28 billion. Its initial guidance issued in late November was for $26 billion in FCF. The rest of AT&T’s forecasts remained unchanged: low single-digit earnings growth in 2019 from last year’s $3.52 per share, roughly $23 billion in capital expenditures, and a dividend payout ratio of about 50%. AT&T stock’s dividend yield is currently 6.4%.

AT&T plans to host an investor day in the fall to discuss HBO Max and its streaming strategy. Walt Disney (DIS) made a splash at its own investor day for Disney+ in April. On the wireless side, the company aims to have a nationwide commercially available 5G network up and running in the first half of 2020.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com