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April 22, 2020, 8:35 a.m. EDT

AT&T pulls guidance, coronavirus upends media

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By Drew FitzGerald

AT&T Inc. warned that the coronavirus crisis is clouding its financial outlook as cash-strapped customers spend less and TV production grinds to a halt.

The Dallas telecommunications company on Wednesday withdrew the financial targets it gave investors in November, citing the economic uncertainty caused by the recent wave of job losses. Executives previously had projected three years of moderate revenue growth powered by the company's core cellphone business.

The coronavirus crisis instead is pulling AT&T's divisions in different directions. Tens of millions of housebound workers are boosting demand for its wireless and broadband services, yet emergency measures telecom companies are taking to keep Americans connected are capping roaming and overage fees. AT&T's WarnerMedia division plans to cater to cooped-up families by launching a new streaming video service on Memorial Day weekend while its studios sit idle and new film releases go straight to video.

"We have a strong cash position, a strong balance sheet, and our core businesses are solid and continue to generate good free cash flow -- even in today's environment," Chief Executive Randall Stephenson said in a statement.

AT&T added 163,000 postpaid phone subscribers during the first quarter, retaining a valuable group that pays for wireless service at the end of a billing cycle, which encourages customer loyalty. The company's premium TV unit, which includes DirecTV, lost 897,000 customers. Its streaming AT&T TV Now service lost 138,000 customers.

Revenue from telecom operations fell 2.6% to $34.25 billion as weaker contributions from pay-TV and business internet services offset slight gains in the wireless division.

Sales at WarnerMedia, which owns a stable of cable channels including CNN, TBS and HBO, dropped 12% to $7.4 billion as ad revenue shriveled near the end of March. Its Warner Bros. studios remain in limbo as health precautions force producers to put shoots on hold.

The harshest effects of the pandemic affected only the last two weeks of the first quarter, but that was enough to drag down results. WarnerMedia lost an estimated $400 million of sales without a college basketball tournament to air, and wireless customers spent $175 million less buying cellphones and other equipment. The company set aside $250 million to cover bad debt from customers skipping payments and reported a $56 million impact from studio production shutdowns.

AT&T said about half of its employees are working from home. The company spent $114 million to boost compensation for front-line employees, including technicians maintaining its networks and store workers who have lost commission payments.

The company was also among the network operators that joined a Federal Communications Commission pledge in March to waive certain fees and keep overdue accounts active during the pandemic. It isn't clear how carriers will respond next month, when the voluntary commitments expire.

Overall, AT&T earned $4.61 billion, or 63 cents a share, during the three months that ended March 30, down from $4.86 billion, or 56 cents, a year earlier. The company's per-share result improved after it bought back some of its common stock in recent months. Total revenue slipped 4.6% to $42.78 billion.

Investors tend to flock to phone and internet companies when the economy sours to take advantage of relatively stable demand for telecom services. AT&T's stance is complicated by its foray into show business, which saddled the company with debt and exposed its bottom line to less predictable income.

AT&T executives have said their media assets will deliver more long-term growth as video consumption skyrockets. WarnerMedia next month will offer HBO Max, an expanded version of the premium TV brand with reruns of popular shows like "Friends," to an at-home audience hungry for new things to watch.

But with no live sports to carry for the foreseeable future, WarnerMedia's basic cable channels offer a less-certain picture. Advertisers are spending less on TV as basketball and baseball leagues put their seasons on hold. DirecTV could also lose more customers in the months ahead as a growing economic crisis forces customers to cull their satellite bundles.

The company earlier this month reassured investors it would keep paying a dividend and secured a short-term $5.5 billion loan to shore up its cash reserves. AT&T also halted plans to buy back $4 billion of its own stock this quarter after pledging months earlier to keep retiring shares.

AT&T said it had about $10 billion of cash on hand at the end of March. The company has focused on cutting costs in recent months and counted about 244,000 employees on its payroll, down from about 248,000 at the end of 2019.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

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