AT&T Delivers Mixed Q3 Results, Lays Out Three-Year Plan Vowing No “Major” M&A


AT&T delivered a mixed bag of third-quarter results, beating Wall Street estimates for adjusted earnings per share by a penny but falling short of revenue expectations.

Along with the quarterly numbers, the telecom and media giant issued a sweeping three-year financial and strategic plan that appeared to include several concessions to activist hedge fund Elliott Management. Elliott accumulated a roughly 1% stake in the company earlier this year and has agitated loudly for major changes to AT&T, which it said would unlock shareholder value.

Earnings per share of 94 cents exceeded analysts’ estimate of 93 cents but total revenue came in at $44.6 billion, undershooting estimates for $45 billion.

One particularly stressed area of the overall business is pay-TV, notably the DirecTV satellite unit. AT&T said total pay-TV subscriptions dropped by nearly 1.2 million in the quarter, to 20.4 million. AT&T Now, the internet-delivered successor to skinny-bundle service DirecTV Now, shed 195,000 subscribers to 1.1 million.

The quarterly numbers arrived just a day before the company’s WarnerMedia entertainment unit was set to lift the veil on HBO Max, its entrant into the increasingly crowded arena of direct-to-consumer streaming. HBO Max is slated to launch next spring, but a flurry of programming announcements in recent weeks has not been accompanied by many specifics about pricing or financial projections. Apple and Disney are launching their own services in the coming weeks, with NBCUniversal also set to roll out the ad-supported Peacock next April.

Stephenson Richard Drew/AP

AT&T’s three-year financial outlook and capital allocation plan helped boost its stock in pre-market trading. Shares are flat with their level in October 2016, when the $81 billion Time Warner acquisition was first proposed.

In addition to hitting certain financial targets, the company said it will pay off 100% of acquisition debt from the Time Warner deal, which caused debt to swell to $170 billion as 2019 began. AT&T also said it plans a “continued discipline review” of its portfolio and “no major acquisitions,” with about $10 billion in asset sales.

The company vowed to add two new board members by 2020 and said CEO Randall Stephenson will not step down in 2020. After John Stankey was upped to the newly created position of COO this month, chatter of succession grew louder.

The new financial guidance calls for 1% to 2% per year consolidated revenue growth and, by 2022, an adjusted EBITDA margin of 35%, 200 basis points higher than 2019 levels. Adjusted EBITDA margins are expected to be stable in 2020 and grow in 2021 and 2022, due to a cost-reduction plan, WarnerMedia synergies, and growth in the company’s Mobility and AT&T Mexico operations. By targeting 35% EBITDA margins with revenue growth of 1% to 2%, the company expects about $6 billion of EBITDA growth in 2022, above 2019 EBITDA levels.

“The strategic investments we’ve made over the last several years have given us the essential elements to meet growing demand for content and connectivity,” Stephenson said. “Our 3-year plan delivers both substantial and consistent financial improvements over the next 3 years. We grow revenues, EBITDA and EPS every single year, and free cash flow is stable next year, but then grows in both of the next two years, as well. And all of this is inclusive of our investment in HBO Max.”

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