AT&T has raised its target for free cash flow this year, supported by better working capital management, after reporting a record amount of USD 8.8 billion in the second quarter. Net earnings fell to USD 0.51 per share in Q2 from USD 0.81 a year earlier and also declined on an adjusted basis, due to a number of one-time items. The US operator said it still expects a low single-digit rise in full-year adjusted earnings.
Revenues in the quarter rose 15.3 percent to USD 45.0 billion, and operating profit increased to USD 7.5 billion from USD 6.5 billion, largely due to the Time Warner acquisition in June 2018. On a pro forma basis, operating revenues rose just 0.6 percent, as declines in legacy wireline, pay-TV services and handset sales offset growth in US mobile services, managed business services, fibre broadband and the ad unit Xandr. Pro forma adjusted EBITDA was up 0.8 percent.
The free cash flow target for the year is now USD 28 billion, compared to USD 26 billion previously. Around 50 percent of that amount will go to dividends, and AT&T reiterated that it will also consider share buybacks. CEO Randall Stephenson said the company was "more confident than ever" of meeting its year-end leverage target. The capex budget for 2019 remains at USD 23 billion.
Fewer postpaid customers
At AT&T Mobility, quarterly service revenues rose 2.4 percent to USD 14.0 billion, and EBITDA improved 3.1 percent to USD 7.9 billion. Net subscriber additions increased to 3.932 million, but this was again largely connected devices, with a net loss of 154,000 postpaid customers. Prepaid additions totaled 341,000. AT&T added only 72,000 postpaid phone customers in the quarter, while ARPU from postpaid phone only rose to USD 55.68 from USD 54.48 a year ago.
At the Entertainment division, which includes pay-TV and the consumer fixed business, revenues fell 1 percent to USD 11.4 billion, as broadband growth offset the decline in legacy wireline and TV services. EBITDA was up slightly on cost reduction efforts, growing by 1 percent to USD 2.85 billion.
More losses in pay-TV
Losses in the pay-TV market swelled to 946,000 customers in Q2, including 168,000 less for OTT services. The total video subscriber base is down by over 2.5 million in the past year to 22.92 million, including 1.34 million subscribers for the OTT service DirecTV Now. AT&T said it plans to start trials of its new thin client service AT&T TV in Q3, offering an internet-delivered version of the DirecTV satellite service.
The broadband segment also deteriorated in Q2, with zero IP customers added and another 34,000 customers lost in DSL. The total base is now down slightly from a year ago, to 14.42 million versus 14.46 million in June 2018. AT&T said it was still growing in the fibre segment, with subscribers up by 318,000 in the three months to 3.38 million.
In the business communications market, revenues fell 0.3 percent to USD 6.6 billion, due to lower legacy and equipment sales, while EBITDA rose slightly to USD 2.6 billion and a margin of 39.9 percent. The ad unit Xandr contributed revenues of USD 485 million, up from USD 392 million a year ago, with an EBITDA margin of 69.7 percent.
