AT&T Falls Most in 20 Years After Overdue Bills Hit Cash Flow

(Bloomberg) -- AT&T Inc. fell the most in 20 years after saying some customers are starting to put off paying their phone bills, which contributed to the wireless carrier cutting its forecast for free cash flow this year by $2 billion.

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The emerging economic strain on consumers is adding to pressure the company had already been facing from deep discounts on new phones and higher spending on network equipment.

AT&T shares fell as much as 11%, their biggest slide since 2002. The rout erased the stock’s gain for the year and sent phone company peers Verizon Communications Inc. and T-Mobile US Inc. lower.

AT&T said Thursday that it now expects 2022 free cash flow of $14 billion. About $1 billion of the difference was tied to the “timing of customer collections.” The gloomier outlook overshadowed second-quarter results that topped estimates for profit and wireless subscriber growth.

The forecast raises concerns that consumers are pulling back on spending in the face of decades-high inflation. Part of that pressure is that their bills are getting more expensive. AT&T raised prices by $6 a line on older mobile plans in May.

“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.

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.

Stankey said he expects higher bad debt and slower payments to continue. Customers are eventually paying their bills, but they’re “less timely,” he said. On average, customers are taking an extra two days to pay their bills.

AT&T added 316,000 new fiber broadband customers in the quarter, topping the 289,000 added in the first three months of the year, giving the company a total of 6.6 million fiber customers. This marked the first full quarter since AT&T spun off its media and streaming business to Warner Bros. Discovery Inc. so it could focus exclusively on wireless and broadband growth.

AT&T used most of the proceeds from the Discovery deal to reduce its net debt by $37 billion in the quarter to $132 billion.

(Updates shares in third paragraph.)

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