AT&T Generates Strong Cash Flow as Growth Softens
AT&T's wireless customer growth and margins were on the weak side, especially relative to the prior quarter and rival Verizon's results.
AT&T’s (T) third-quarter results were mixed. Very strong consolidated cash flow and accelerating growth in revenue per wireless customer were the biggest positives, in our view. On the other hand, wireless customer growth and margins were on the weak side, especially relative to the prior quarter and rival Verizon's (VZ) results. The timing of the latest iPhone launch affects AT&T more than any other carrier, however, and it is difficult to pull out the exact impact that the device has on the firm in a single quarter. In addition, AT&T is set to unveil a revised strategy for its fixed-line business and other new growth initiatives at its analyst day in two weeks. At this point, we are leaving our fair value estimate unchanged.
AT&T produced exceptionally strong free cash flow during the third quarter on lower capital spending and strong working capital management. For the quarter, the firm generated $6.5 billion, or more than $1 per share. The total for the year thus far now stands at $15.1 billion, up 22% versus a year ago. The firm now expects to generate more than $18 billion during 2012, up from a previous forecast of $15 billion-$16 billion. As a result of the strong cash generation, AT&T has been able to simultaneously fund its dividend, continue buying backing stock, and reduce leverage during 2012.
Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.