Last week, AT&T (NYSE: T) reported its first full quarter as the new owner of Time Warner. Overall, the third quarter was solid with growth in revenue and earnings, but stock dipped after the financials were initially released on October 24. AT&T reported consolidated revenue for the third quarter of 2018 of $45.7 billion, a 15.3 percent increase over the same period last year. The increase is primarily due to the company’s acquisition of Time Warner.

Net income for AT&T was $4.7 billion, or $0.65 per diluted share, compared to $3.0 billion, or $0.49 per diluted share, in Q3 2017. Adjusted net earnings per diluted share were $0.90, a 21.6 percent increase over $0.74 adjusted earnings per diluted share for the same period last year. According to Billboard, analysts were expecting earnings of $0.94 per diluted share on revenue of $45.65 billion.

“I’m pleased with the progress we made on a number of fronts in the third quarter,” said Randall Stephenson, AT&T chairman and CEO, in an October 24 news release. “Our U.S. wireless business is growing and it’s the single biggest contributor to our earnings and cash flow. WarnerMedia was immediately accretive in its first full quarter, contributing 5 cents to EPS, and our free cash flow grew by double digits.”

“We’ve accomplished all this while staying focused on managing our debt portfolio. We’re on track to get to the 2.5x debt-to-EBITDA range by year-end 2019. And as we’re nearing completion of our fiber build and making pricing moves on video, we’re laying the foundation for stabilizing our Entertainment Group profitability in 2019,” added Stephenson. “Across the business, I like our momentum and feel confident that we’re on track to deliver on our plans.” 

Other financial highlights for the quarter include:

• Cash from operations was $12.3 billion, an increase of 14.3 percent.
• Capital expenditures for the quarter were $5.9 billion, including $560 million for FirstNet.
• Operating expenses were $38.5 billion compared to $33.9 billion in Q3 2017, mostly due to the Time Warner acquisition.
• Operating income was $7.3 billion, a 25.2 percent increase, mostly due to the Time Warner acquisition.
• Operating income margin was 15.9 percent compared to 14.6 percent in Q3 2017.
• On September 28, AT&T declared a quarterly dividend of $0.50 per share payable on November 1.

Operational highlights for the quarter include:

• North America Wireless had 4.3 million total wireless net additions.
• Mobility’s service revenues grew 2.3 percent with 550,000 phone net additions in the U.S.
• DIRECTV NOW, AT&T’s streaming video product, had 49,000 net additions but overall lost 346,000 in traditional video due to declines in linear TV subscribers and customers rolling off promotional discounts and moving to competing services.
• DIRECTV Now has a total subscriber base of 1.9 million.
• AT&T WatchTV added subscribers during the third quarter, but AT&T declined to share the number.
• WarnerMedia had total revenue of $8.2 billion, a 6.5 percent increase year-over-year and had revenue growth in all business segments, including increases in year-over-year subscription revenue at Turner and HBO.
• AT&T reported strong TV licensing revenue growth for Warner Bros. including box office releases Crazy Rich Asians, The Meg and The Nun.
• WarnerMedia won 37 primetime Emmy awards and 12 news and documentary Emmy awards and had three of the top five ad-supported cable networks, TNT, TBS and Adult Swim, in primetime among adults aged 18 to 49.
• CNN is ranked the #1 leading digital news destination.
• Xandr, AT&T’s new advertising company, reported revenue of $445 million, representing revenue growth of 34 percent, not including its August 15 acquisition of AppNexus.
• AT&T provided relief to customers affected by Hurricane Florence, Hurricane Lane, Hurricane Michael, northern California wildfires and the Boston natural gas explosions, donating more than $300,000 to affected communities.
• The Entertainment Group ended the quarter with 25.2 million video subscribers.
• DIRECTV celebrated its 25^th season of NFL Sunday Ticket, broadcasting its 5,000^th game.
• AT&T premiered the second season of Stephen King’s Mr. Mercedes on the AUDIENCE network. The series is the most-watched program on the network.
• DIRECT NOW has added more than 100 new local channels to its OTT streaming service. The service is available in more than 120 markets in the U.S.
• Shortly after the end of the third quarter, WarnerMedia announced it is working on a new direct-to-consumer streaming video service.

The company reaffirmed its 2018 guidance with adjusted earnings per share in the $3.50 range.

On October 23, 2018, the day before the earnings report was released, AT&T stock was valued at $33.02 per share. On October 24, stock had dropped to $30.36 per share. As of 8:11 a.m. EDT yesterday, it was valued at $30.68 per share.

Insider Take:

Though AT&T stock dipped slightly after the earnings report, its quarterly earnings report was solid with growth in the majority of business segments and categories. The acquisition of Time Warner is already adding value to the AT&T portfolio, and the company’s continued experimentation with streaming video subscription services will provide some offsets to the loss of traditional TV subscribers, as well as longer term recurring revenue. With Turner, HBO, DIRECTV, Warner Bros. and WarnerMedia under its umbrella, AT&T has an entertainment powerhouse to guide it to a strong finish this year.