AT&T initiates new $2 billion cost-cutting program as free cash flow beats estimates

Reuters

Published Jul 26, 2023 06:28AM ET

Updated Jul 26, 2023 12:02PM ET

By Samrhitha A

(Reuters) -AT&T expanded its cost-cutting plan by $2 billion on Wednesday after topping estimates for quarterly free cash flow and reiterated it was conducting its own assessment of the lead-cable sites.

The telecom industry came under pressure this month after the Wall Street Journal reported that AT&T (NYSE:T) and Verizon (NYSE:VZ) were among U.S. companies that abandoned a sprawling network of lead-clad cables, which might have contaminated water and soil.

"Independent experts, long-standing science have given us no reason to believe these cables pose a public health risk," AT&T CEO John Stankey said on a post-earnings call.

A day earlier, Verizon said it was conducting its own tests and that it was far too soon to make a projection on the potential financial impact.

Analysts have said the issue of lead cables could turn into a long-drawn process, with potential liability ranging from near-zero to tens-of-billions of dollars.

For now though, AT&T is benefiting from a cost-cutting drive.

The new $2 billion-plus target over the next three years came after it achieved a $6 billion cost-cutting goal ahead of schedule, AT&T said.

Those efforts helped shave off more than $1 billion in operating expenses in the second quarter through measures such as a reduction in office locations.

A lower cost bill is crucial as AT&T needs a steady flow of cash to service its net debt of $132 billion and support a dividend that is among the highest for U.S stocks.

"Debt is still the company's overriding issue," said Danni Hewson, head of financial analysis at AJ Bell, adding the lead cables put "a big question mark" over AT&T's prospects.

Free cash flow came in at $4.2 billion in the three months ended June, topping estimates of $3.60 billion, according to Visible Alpha. That marked a big improvement from the first quarter when FCF missed estimates by more than $1.5 billion.

The company added 326,000 postpaid phone subscribers in the second quarter, in line with the low 300,000s prediction provided by finance chief Pascal Desroches at a conference in June. That figure was nearly 60% lower than a year earlier.