Summary
- As we near the time for AT&T to release financial results, it's important for investors to keep an eye out on key issues.
- Cash flow and debt will be important, as will core operational performance and management's plans moving forward.
- This could be the opportunity to consider buying the robust turnaround.
- Looking for a helping hand in the market? Members of Crude Value Insights get exclusive ideas and guidance to navigate any climate. Get started today »
On October 28th, the management team at AT&T (T) is slated to report financial results for the third quarter of the telecommunications and entertainment giant’s 2019 fiscal quarter. Leading up to that release, it’s important to keep in mind some of the key value drivers, the expectations management has given shareholders to anticipate for the year, and some other key factors that could come into play during the period. Though a lot of ambiguity exists leading up to the company’s release, the likely result will be yet more evidence that the company is well on its way to improving its business and setting itself up for long-term success.
Expect strong free cash flow and debt reduction
If the recent past has been any good indicator, and if management’s guidance is to be believed for 2019, investors in AT&T should expect the firm to report some robust financial figures for its latest quarter. Questions still exist about whether or not the firm’s decision to acquire Time Warner in an effort to create a player that combines content with distribution still makes sense, but seeing synergies generated by the business as a result of the move will be vital. This should, in turn, lead to strong free cash flows if the company is a success.
In the first half of 2019, AT&T’s free cash flow came out to $14.7 billion. Actual free cash flow can be controlled fairly easily by the company’s capex spending (which it pegs this year to be set around $23 billion), but as of its latest update to investors, it said that it still anticipates free cash flow to be somewhere around $28 billion. That is incredibly high, even if you consider that the company’s market capitalization is just $273.5 billion as I type this.
One objective of management over the past several quarters has been to focus on debt reduction. At the end of its 2018 fiscal year, the company had net debt of about $171.30 billion, but through its own internally-generated free cash flow and through some minor asset sales, the business was able to reduce this by $9.16 billion in the first two quarters of 2019 to just $162.14 billion. Without factoring in any other possible asset sales, if the firm does generate the free cash flow it anticipates for the year, we might be looking at another $6 billion to $7 billion in debt reduction.
This is great to see, but part of the reason why it won’t be longer has to do with the firm’s dividend plan. Management recently stated that it has increased the quarterly dividend at the firm for 35 consecutive years through 2018, and for the latest quarter the company announced a distribution equivalent to $0.51 per unit. This matches what was seen in the prior two quarters, but is up still over the $0.50 per unit averaged in the first two quarters of 2018. In all, management anticipates a free cash flow dividend payout ratio for 2019 of about 50%, down from 2018’s 60%, but even that will permit a year-over-year improvement.
