AT&T has crashed as Americans can’t afford to pay their phone bills. Peers Verizon and T-Mobile were also affected by this, which sent their shares lower despite second-quarter results that exceeded expectations.
AT&T’s stock price dropped on Thursday after CEO John Stankey claimed that customers were beginning to put off paying their phone bills. As a result, the cellular provider reduced its forecast for free cash flow this year by $2 billion, according to Bloomberg.
The company’s shares dropped as much as 11 percent in early trade, the biggest decline since 2022, wiping out the stock’s gains for the year.
The pressure on AT&T is already high due to steep discounts on new phones and capital expenditures for network equipment. A weaker consumer adds to this pressure. The company now anticipates free cash flow of $14 billion in 2022, of which $1 billion will be impacted by the “timing of customer collections.”
Peers Verizon and T-Mobile were also affected by the announcement, which sent their shares lower despite second-quarter results that exceeded expectations in terms of profit and wireless subscriber growth.
The company added 813,000 regular monthly phone subscribers in the second quarter, exceeding the 554,000 average estimate of analysts surveyed by Bloomberg. Earnings, excluding some items, topped estimates at 65 cents a share, while analysts were looking for 62 cents. Revenue in the quarter met estimates at $29.6 billion.
Recent price increases and subscriber gains allowed the company to raise its forecast for full-year wireless service revenue growth to a range of 4.5% to 5%, up from at least 3% previously. Even so, those price hikes aren’t fully covering costs, Chief Executive Officer John Stankey told analysts on AT&T’s earnings call.
-Bloomberg
“I’m not surprised to hear consumers are paying bills more slowly; they are already struggling with higher food and energy prices,” said Wolfe Research analyst Peter Supino. “I’m not worried so much for AT&T as I am for the broader consumer economy. You wonder if this is the canary in the coal mine.”
The highest US inflation in four decades has been squeezing household budgets everywhere from the gas pump to the grocery aisle. That has soured people’s view of the economy and forced some to scale back entertainment and other discretionary spending. But wireless has long been considered an essential service, even for low-income Americans, and discounts on phones are still luring them to sign up with AT&T.
-Bloomberg
And just to remind you, the so-called strong consumer is depleting their savings at a virtually unheard-of rate while using credit cards to pay for their skyrocketing living expenses.
Even if consumers are gradually paying their bills, they are “less timely,” Stankey said, and he anticipates more bad debt and delayed payments to persist.
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