AT&T Q2 FY2022 Earnings Report Preview: What to Look For

AT&T Inc. (T) has undergone massive structural changes in recent months as the company shifts to focusing on its core telecom business. Early in the second quarter, the company completed the spinoff of its WarnerMedia business, which combined with Discovery Inc. to form a new media and entertainment company, Warner Bros. Discovery Inc. (WBD). Now AT&T is focusing on fiber, 5G, and other aspects of its telecom business.

Investors will focus on how the new, slimmed-down AT&T is performing when it reports earnings on July 21, 2022 for Q2 FY 2022. The company's adjusted earnings per share (EPS) are expected to fall for a second consecutive quarter as revenue declines for the fourth straight quarter.

Investors also will be watching another key AT&T metric: mobile postpaid net adds. The metric represents the number of new postpaid mobile subscriptions less the number of canceled subscriptions. Now that AT&T is focusing its core telecom business, the number of mobile subscribers is more important than ever.  And the news may not be good for Q2. Analysts expect AT&T's mobile postpaid net adds are expected to fall significantly year-over-year (YOY).

AT&T shares have had a volatile year. The shares fell sharply throughout fall 2021 to a low point that December. They then rebounded sharply through January, but reversed course and fell again amid the company's Q4 FY 2021 earnings release. The shares mounted another recovery in April and May 2022 and have outpaced the broader market since that time. As of July 20, AT&T shares have provided a 1-year trailing total return of 4.6%, well ahead of the S&P 500's total return of -8.9%.

AT&T Earnings History

AT&T's quarterly adjusted EPS performance has been erratic in recent years. Prior to the pandemic, in FY 2019, adjusted EPS grew between 0.8% and 4.1% YOY for three out of four quarters, with a decline of 2.7% in Q2 FY 2019. Adjusted EPS fell YOY in each quarter of FY 2020. However, AT&T largely recovered by posting four consecutive quarters of YOY adjusted EPS growth in FY 2021. This growth may not be sustainable in the short term in the wake of the spinoff of its entertainment business. Adjusted EPS fell 9.5% in Q1 FY 2022. Now, analysts expect a sharper decline of 28.2% YOY in Q2 FY 2022, which would be the steepest decline in about four years.

AT&T also has a history of weak revenue performance: it posted YOY revenue declines in nine of the 13 most recent quarters. The company posted six straight quarters of revenue declines from Q3 FY 2019 to Q4 FY 2020, which grew steeper as the pandemic spread in 2020. The company temporarily halted this trend with modest revenue gains YOY during both Q1 and Q2 FY 2021. But the three most recent quarters have once again seen increasingly steep revenue drops. Most recently, in Q1 FY 2022, AT&T's revenue fell 13.3% YOY. In Q2, analysts expect revenue to plunge 32.8% YOY. Revenue performance is likely to be affected significantly by the spinoff of WarnerMedia, mentioned above.

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The Key Metric

As mentioned above, investors will also be focused on AT&T's mobile postpaid net additions, which is a metric gauging the total number of net new mobile subscribers. Postpaid subscriptions differ from prepaid subscriptions in that payments are made at the end of a period based on usage. This key metric reflects the net difference between the number of new postpaid mobile subscriptions and the number of subscriptions that were terminated. Now that AT&T's spinoff of WarnerMedia is complete, attracting new mobile subscribers and retaining old ones has become the company's priority.

AT&T saw mobile postpaid subscribers fall YOY in Q2 FY 2020 as the COVID-19 pandemic began, but after that time the company reported strong growth in mobile postpaid net additions. The company added more than 1 million net postpaid subscribers in five of the last seven quarters, with Q1 FY 2021 and Q1 FY 2022 as the only exceptions. mobile postpaid net additions were 965,000 in Q1 FY 2022, an increase from the same quarter a year earlier, but a steep sequential decline. For Q2, analysts estimate that AT&T's mobile postpaid subscribers will drop 29.3% YOY to 816,900.