AT&T boasts confidence amid chaos

AT&T’s financial performance and outlook took a hit during the final weeks of the first quarter due to the coronavirus pandemic, but executives are confident the company will emerge in a stronger position once the economy recovers.

“It has been a chaotic few weeks for all of us and the COVID pandemic had a significant impact to our first quarter, to the tune of 5 cents per share,” AT&T CEO Randall Stephenson said during an earnings call.

Absent the impacts of the pandemic, which has forced half of AT&T’s employees to work from home, Q1 results were largely in line with the company’s expectations, he said. Mobile service revenues actually beat Wall Street’s expectations, jumping 2.5% from the year-ago period, but equipment revenues were down nearly 25% on an annual basis in March alone.

“We’re seeing unprecedented volumes of voice calls, texts, and video streaming and our network is performing very well,” Stephenson said. “Connectivity is more essential now than ever and we want to do what we can to help our customers stay connected through this crisis.”

A dramatic decline in economic activity, prompted by stay-at-home orders and widening unemployment across the country, comes as AT&T was already undertaking a series of cost-cutting initiatives that will lead to billions of dollars in savings. The company previously said it planned to cut $1.5 billion in labor-related costs this year and has since hinted at even deeper job losses.

AT&T’s Cost-Cutting Plans Underway

John Stankey, the company’s president and COO, last month outlined 10 initiatives that were expected to generate “double digits of billions” in savings over a three-year period. He decreased that total amount of savings to $6 billion on today’s call, adding that efforts to cut costs in field operations and retail distribution are already underway. Those two segments will yield more than $1 billion in savings on recurring costs, Stankey said.

“We’re not backing off our cost and efficiency transformation initiatives that remain largely under our control. If anything, we see this as an opportunity to approach all our businesses differently and better align our work with how COVID has reshaped customer behaviors and the economy,” he said.

“This experience will change many things, including customer behaviors and expectations. We’re evaluating our product distribution strategy, relooking at volumes and the required support levels we need in a down economy.”

AT&T has “weathered the front end of the storm” and the company is now focused on “defining and leveraging the new normal across all of our operations,” Stankey added.

Analysts at MoffettNathanson noted that AT&T and the economy at large are in “uncharted waters” and that “no one — not us, not the company, not consensus — really knows what the balance of this year is going to look like. Nor do we have a clue, really, about 2021.”

Worse Yet to Come?

AT&T’s Q1 results are “but a preview of what is to come as the recession deepens,” the analyst wrote in a research note. “The impacts of the crisis can only begin to be seen in the current results” and because AT&T’s subscription revenues are typically paid a month in advance “most impacts will lag, not lead, the recession.”

That uncertainty was apparent throughout AT&T’s chat with investors today. “It’s impossible to overstate the impact of COVID-19 on all of us. I expect it will have long-lasting implications for many things we used to take for granted like how we congregate, work, travel, interact. The economic impact has been swift and there is no consensus on how long this downturn lasts,” Stephenson said.

Much will be determined by when and how the economy opens up again and when efficient testing and protocols are in place to ensure health and safety in public, he explained. “Bottom line, we have very little visibility into the broader economic situation which makes it impractical to provide detailed financial guidance at this time.”

AT&T has suspended stock buybacks and rescinded all previous financial guidance, but it remains committed to its dividend for stockholders. “We’re sizing our operations to reflect the new economic activity level and we’re leaning into our cost and efficiency initiatives,” Stephenson said.

The company’s cost-cutting plan will also enable it to continue to invest in 5G, broadband, and HBO Max, which is slated to go live next month, Stankey said. “Our 5G deployment continues, although we continue to navigate workforce and permitting delays. We expect nationwide coverage this summer.”

AT&T Pushes Back 5G Goals

AT&T last month said it was on track to deploy “nationwide” 5G coverage before July with 200 million people covered, but the new designation of a summer timeline could portend a delay until late September. The company declined to provide updated capex guidance, but hinted at a potential decline due to challenges in actually spending those dollars.

Logistics like new cell site acquisitions, which require permitting and government oversight, are a “little bit hampered right now,” Stephenson said. “While we have no intention of slowing down on 5G and fiber deployment and such, the reality is that a lot of it is not in our control.”

AT&T’s 5G network now covers a potential population of more than 120 million people in 190 markets. Those numbers reflect a 50% increase in population coverage since the company provided an update last month.

AT&T banked $4.96 billion in net income on nearly $42.78 billion in revenue during the quarter, translating to a 4.6% year-over-year decline in revenue and a 14.1% increase in profit.

“AT&T’s been through a lot of other crises before and each time you’ve seen us emerge in a stronger position and I’m confident we’ll do it again with this one,” Stephenson said.

―SDX Central