AT&T's third-quarter results show a telecom company that has improved its subscriber growth and generation of free cash flow while steadily increasing profits.
The No. 3 U.S. telecom carrier said it now expects $16.5 billion of free cash flow for 2023, up from $16 billion earlier. The metric has been in focus for AT&T (ticker: T) because its capital spending has taken off. The company spent a record $24 billion last year and has said it expects to pour in the same amount to build out its 5G and fiber networks this year. Higher expenditures eat into free cash flow levels, limiting companies' ability to pay dividends.
AT&T's free cash flow was $5.2 billion for the third quarter, beating management's prior forecast for $4.5 billion to $5 billion and $1.3 billion higher than a year earlier.
The company also raised its guidance for growth in adjusted earnings before interest, taxes, depreciation and amortization for the year to 4% from 3% earlier.
The stock was about 7% higher at $15.29 after the market opened for trading on Thursday.
AT&T's net additions of mobility postpaid phone subscribers—people who receive a monthly bill for service—hit 468,000 in the quarter ended in September. It was the first time AT&T posted growth in subscribers after four straight quarters of declines.
Telecom companies are battling for subscribers. The need for social distancing during the pandemic encouraged more people to get cell phones, but growth has since cooled. Chief Financial Officer Pascal Desroches said at the start of the year that AT&T has "definitely" started seeing a moderation in the second half of 2022.
Third-quarter revenue rose 1% from the same time last year to $30.4 billion, while adjusted profit was 64 cents a share. Analysts expected AT&T to report revenue of $30.2 billion and adjusted earnings of 62 cents a share.
Of course, not all is great. AT&T, much like Verizon (VZ), still faces the risk that it might have to bear the cost of cleaning up lead-sheathed cables , though recent tests have found no public-health risk. There is also the high net debt—$128.7 billion as of the latest quarter—that comes with running a telecom business.
Verizon reports its earnings on Oct. 24, while T-Mobile is due to report the next day.