AT&T has raised its full-year outlook, after showing a strong recovery in second-quarter results at its wireless and media businesses. The company now expects 2-3 percent comparable sales growth this year, compared to an earlier forecast for 1 percent. This excludes the impact of the pending spin-off of DirecTV, which should be completed in the coming weeks.
AT&T reported quarterly revenues up 7.6 percent year-on-year to USD 44.0 billion, reflecting partial recovery from the prior-year effects of the initial Covid-19 outbreak. Higher WarnerMedia, Mobility, Mexico, and Consumer Wireline revenues more than offset declines in domestic video and Business Wireline and the sale of AT&T's activities in Puerto Rico and the US Virgin Islands.
Operating profit dropped to USD 3.3 billion from USD 3.5 billion a year ago, due to a bigger writedown on Vrio and higher programming costs from the return of sports. On an adjusted basis, the profit reached USD 8.9 billion, down slightly from USD 9.0 billion a year ago. Net profit still increased to USD 1.5 billion from USD 1.2 billion, helped by financial gains, and adjusted EPS totaled USD 0.89, up 7.2 percent year-on-year.
Operating cash flow fell by around USD 1.1 billion from a year ago to USD 10.9 billion, with capex at USD 4.0 billion and content spend of USD 5.3 billion. Free cash flow totaled USD 7.0 billion. With net debt down by around USD 0.9 billion compared to March, AT&T finished the period with leverage of 3.15x adjusted EBITDA.
For the full year 2021, AT&T now expects adjusted EPS to grow in the low- to mid-single digits. With capex at around USD 17 billion, annual free cash flow should reach USD 27 billion, of which a high 50s percentage will go to dividends. The forecast excludes the DirecTV spin-off, which will reduce revenue in 2021 by around USD 9 billion, as well as take USD 1 billion off EBITDA and USD 1 billion from free cash flow.
Wireless service revenues up 5%, equipment sales jump 32%
At AT&T Wireless, quarterly revenues were up 10.4 percent year-on-year to USD 18.9 billion, helped by 31.9 percent higher equipment sales and a 5.0 percent rise in service revenues. Operating profit rose a slower 3.4 percent to USD 6.0 billion, due to the extra costs associated with higher equipment sales, higher network costs and the costs for bundling HBO Max with mobile plans. The EBITDA margin dropped to 42.4 percent from 45.6 percent a year ago.
AT&T added a net 5.5 million mobile lines in the quarter. That included 1.156 million postpaid net adds, of which 789,000 phones, and 174,000 prepaid phone adds. Postpaid phone churn fell to 0.69 percent from 0.84 percent a year ago, a new record low, while prepaid churn of less than 3 percent also set a record. Postpaid phone-only ARPU was USD 54.24, down 0.4 percent versus the year-ago quarter, mostly due to the impacts of promotional discounts, but up sequentially, the company said.
Higher FY target for HBO Max subscribers
WarnerMedia posted revenues up 30.7 percent year-on-year to USD 8.8 billion, driven by the recovery in the advertising, film and TV businesses and strong growth in direct-to-consumer subscriptions. The investment in HBO Max, sports and other content led to an increase in costs, and operating profit fell 11.3 percent to USD 1.7 billion.
Subscription revenues rose 21.3 percent to USD 4.0 billion, driven by the growth at HBO. At the end of June, there were 47.0 million domestic HBO Max and HBO subscribers, up from 44.2 million three months earlier and an increase of 10.7 million in the past year. Domestic subscriber ARPU was USD 11.90. Including customers outside the US, HBO counted 67.5 million subscribers worldwide, and AT&T raised its year-end target for the service to 70-73 million from a previous estimate of 67-70 million subscribers.
