AT&T (T) Tops Q2 EPS by 4c, Revenues Miss Slightly
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AT&T (NYSE: T) reported Q2 EPS of $0.83, $0.04 better than the analyst estimate of $0.79. Revenue for the quarter came in at $40.95 billion versus the consensus estimate of $41.1 billion.
- Diluted EPS of $0.17 as reported compared to $0.51 in the year-ago quarter
- Adjusted EPS of $0.83 compared to $0.89 in the year-ago quarter (did not adjust for COVID-19 impacts: ($0.03) of incremental costs and ($0.06) of estimated revenues)
- Cash from operations of $12.1 billion
- Capital expenditures of $4.5 billion; purchased additional $1 billion in new spectrum for 5G
- Free cash flow of $7.6 billion; total dividend payout ratio of 49%1
- Consolidated revenues of $41.0 billion
“Our solid execution and focus in a challenging environment delivered significant progress in the quarter, most notably the successful launch of HBO Max, resilient free cash flow and a strengthened balance sheet,” said John Stankey, AT&T chief executive officer. “Our resilient cash from operations continues to support investments in growth areas, dividend payments and debt retirement. We are aggressively working opportunities to sharpen our focus, transform our operations and continue investing in growth areas, with the customer at the center of everything we do.”
In March 2020, the World Health Organization designated the coronavirus (COVID-19) a pandemic and the President of the United States declared a national emergency. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns.
Disruptions caused by COVID-19 and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results of operations. In the second quarter of 2020, we recognized approximately $320 million, or $0.03 per diluted share, of incremental costs associated with voluntary corporate actions taken primarily to protect and compensate front-line employees and contractors, and WarnerMedia production disruption costs.
In addition to these incremental costs, we estimate that our operations and comparability were impacted by an estimated $510 million, or $0.06 per diluted share, for the following COVID-19 related pressures: (1) the cancellation and postponement of televised sporting events, resulting in lower advertising revenues and associated expenses, (2) the closure of movie theaters and postponement of theatrical releases, leading to lower content revenues and associated expenses (3) the imposition of travel restrictions, driving significantly lower international wireless roaming services that do not have a directly correlated expense reduction and most significantly impact profitability (4) closures of retail stores, contributing to lower wireless equipment sales, with a corresponding reduction in equipment expense and (5) unfavorable foreign exchange pressure in Latin America.
All subscriber counts at and for the period ended June 30, 2020, exclude customers who we have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” For reporting purposes, we count these 471,000 nonpaying postpaid (including 338,000 postpaid phone), 159,000 broadband and 91,000 premium TV subscribers as if they had disconnected, even though they are still receiving service.
The economic effects of the pandemic and resulting societal changes are currently not predictable. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to our operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains. We expect operating results and cash flows to continue to be adversely impacted by COVID-19 for at least the duration of the pandemic. We expect our third-quarter results to be impacted by the following:
• The shift in timing of advertising revenues from the postponement, restarting or cancellation of sporting events and the related timing of the sports costs;
• Lower revenues from the closure of movie theaters and postponement of theatrical releases, partially offset by lower production and other programming expenses;
• The decline in revenues from international roaming wireless services due to reduced travel and travel-related restrictions;
• Higher expenses to protect front-line employees, contractors and customers; and
• The continued transition of customers to our fiber broadband services and the acceleration of the disconnection of linear TV services due to the pandemic.
We announced on July 23, 2020 that second-quarter 2020 net income attributable to common stock totaled $1.2 billion, or $0.17 per diluted share. Second-quarter 2020 income per diluted share included amounts totaling to $(4.7) billion, or $(0.66) per share, resulting from the following significant items that are reported in Corporate and Other and not in our segment results: $(0.32) per share for impairments, primarily goodwill from our Latin America business, Vrio, $(0.24) per share for the amortization of merger-related intangible assets, and a combined net $(0.10) per share for employee separation, merger and integration costs and other items. The results compare with a reported net income attributable to common stock of $3.7 billion, or $0.51 per diluted share, in the second quarter of 2019.
Second-quarter 2020 revenues were $41.0 billion, down 8.9 percent from the second quarter of 2019. Revenues were impacted by the COVID-19 pandemic across all segments, most significantly contributing to lower content and advertising revenues at WarnerMedia and wireless service and equipment revenues in the Communications segment. Revenues were also lower due to continued declines in domestic video and legacy wireline services and were impacted by Latin America foreign exchange pressure. Compared with results for the second quarter of 2019, current quarter operating expenses were $37.4 billion, down 0.1 percent, primarily due to lower WarnerMedia segment expenses associated with lower revenues, lower content costs associated with subscriber declines in the Entertainment Group and lower costs at Latin America. These expense decreases were partially offset by a goodwill impairment at Vrio, employee separation charges and incremental COVID-19 costs associated with the voluntary corporate actions taken primarily to protect and compensate front-line employees and contractors. Second-quarter operating income was $3.5 billion compared to $7.5 billion in the comparable 2019 period, and AT&T’s second-quarter operating income margin was 8.6 percent, compared to 16.7 percent in the comparable 2019 period.
Second-quarter 2020 cash from operating activities was $12.1 billion, down $2.2 billion when compared to 2019, resulting from a one-time cash flow increase of $2.6 billion from sales of WarnerMedia receivables in the year-ago quarter. Capital expenditures in the second quarter of 2020 were $4.5 billion, and when including approximately $560 million cash paid for vendor financing, gross capital investment was $5.1 billion (with $72 million FirstNet reimbursements).
For earnings history and earnings-related data on AT&T (T) click here.
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