AT&T Earnings Report Questioned Living Up of Economic Cycle Resistant Stocks to Their Definition

On Thursday last week, AT&T (T) published its pivotal 2H 2022 earnings report. Q2 Non-GAAP EPS of $0.65 beat consensus forecast by $0.03, while revenue of $29.6 billion (-17.2% YoY, yikes!) still exceeded expectations by $130 million. The company added 813,000 regular monthly phone subscribers in the second quarter, exceeding the 554,000 average estimate according to Bloomberg. The telephone operator also posted more than 800,000 postpaid phone net adds to unveil its best Q2 in over a decade. Cash from continuing operations accounted for $7.7 billion, while capital expenditures from continuing operations rose to $4.9 billion and capital investment – to $6.7 billion.

However, free cash flow from continuing operations of $1.4 billion fell the most in 20 years after the company shamefully admitted more customers are opting to put off paying their phone bills, which contributed to the wireless carrier cutting its forecast for free cash flow this year by $2 billion. AT&T shares, although recovering today by a meager 0.16% in premarket, momentarily fell as much as 11%, posting their biggest drop since 2002. The rout erased the stock’s gain for the year and sent phone company peers Verizon Communications (VZ) and T-Mobile US (TMUS) lower.

Apparently, due to the rising inflationary impact on U.S. household budgets, the ongoing economic pain on consumers is adding to pressure the company that had already offered deep discounts on new phone line installations and higher own network equipment expenditures. However, AT&T raised prices by $6 a line on older mobile plans in May.

The guidance raises concerns that consumers are pulling back on spending in the face of decades-high inflation. It becomes more and more evident, that the uncontrollable inflation, the greatest in 4 decades, rapidly shifts consumer habits into safe mode as it has been squeezing household budgets everywhere, from the gas pump to the grocery stores.

AT&T said also during its conference call that it now expects 2022 free cash flow of just $14 billion. About $1 billion of the difference was tied to the “timing of customer collections.” The biggest challenge coming from AT&T’s report is whether, in general, the acyclical companies are now meeting their definitions under current unique circumstances.