(Bloomberg) — AT&T Inc. missed analysts’ estimates for free cash flow in the first quarter and added fewer subscribers than a year earlier, signaling tight competition among rivals and sending shares lower across the sector.
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Free cash flow was $1 billion in the period, the Dallas-based phone giant said in a statement on Thursday. That was well below the $3.02 billion Wall Street predicted, according to a Bloomberg survey, and about 6% of the $16 billion the company expects for the year.
The shortfall revives concerns that AT&T is struggling with high costs of phone inventory, network construction and lower contributions from its declining DirecTV joint venture. The company said it expects higher free cash flow levels in the second half of the year and is on track to meet or exceed its annual target.
The shares slid almost 6% in early trading, sending telecom peers Verizon Communications Inc. and T-Mobile US Inc. down about 2%.
Amid stubbornly high inflation and rising interest rates, consumers are increasingly reluctant to spend more for 5G service and broadband connections. AT&T added 424,000 regular monthly phone subscribers in the first quarter, and while that exceeded the 400,556 that analysts predicted, it was almost 40% fewer than the company added a year ago, fueling some concerns that the industry may be entering a slowdown after the pandemic surge.
Since spinning off its WarnerMedia business to Discovery a year ago, AT&T has rededicated itself to connectivity, and specifically to expanding 5G wireless and fiber-optic networks. The shift in business and high levels of capital spending contributed to a surprising drop off in free cash flow last year.
The company is continuing to persuade customers to shift to its faster fiber optic internet service, signing up 272,000 people in the first quarter even as it lost 23,000 broadband users. But that was lower than the 289,000 customers AT&T added in the same period a year ago. The company said it’s still on track to pass 30 million homes and businesses with fiber by the end of 2025.
AT&T posted earnings, excluding some items, of 60 cents a share on $30.1 billion in sales. Analysts predicted 59 cents on revenue of $30.3 billion.
Capital investment was $6.4 billion in the first quarter, which includes capital expenditures and $2.1 billion for vendor financing. Analysts predicted capex of $5 billion in the first quarter and a $21 billion outlay for the year. Net debt rose to $134.7 billion from $132.2 billion in the fourth quarter.
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