AT&T Beats Earnings Forecasts as Debt Load Overshadows Record Fiber Growth

AT&T reported third-quarter revenue and profit ahead of Wall Street's forecasts on Wednesday, with its fiber and wireless businesses posting the strongest combined subscriber growth in years. Shares fell anyway, as investors focused on a sharp rise in debt following the company's purchase of wireless spectrum from EchoStar.

The Dallas-based carrier said in a filing with the Securities and Exchange Commission that quarterly revenue rose 5.3 percent to $32.3 billion, up from $30.7 billion a year earlier, and that adjusted earnings came in at 65 cents a share, beating the roughly 60-to-61-cent consensus tracked by analysts. Service revenue, AT&T's preferred measure of underlying demand, grew 3.8 percent to $26.3 billion, which the company and outside analysts described as its best growth in that metric in more than four years.

A Record Quarter for Connections

The quarter's standout figure was subscriber growth. AT&T added 769,000 broadband connections across fiber and fixed wireless, a company record, split between 442,000 new fiber customers and 327,000 fixed-wireless internet customers, according to the quarterly report AT&T filed alongside the release. Postpaid phone net additions came to 379,000, with monthly churn holding at 0.92 percent, and the company said it had signed up more than 1 million new "Advanced Connectivity" customers — its term for fiber, fixed wireless and wireless subscribers combined — for a second consecutive quarter.

AT&T's fiber network now passes more than 39 million homes and businesses, and the company reiterated a target of 40 million-plus locations by the end of 2026 and 60 million by 2030. It also said 42.8 percent of households that buy its home internet service also take AT&T wireless, a gauge of so-called convergence that the company has leaned on to argue its bundled fiber-and-phone customers are stickier and more profitable than single-product subscribers. A supplemental investor presentation filed with the SEC put adjusted EBITDA at $12.5 billion, up 5.4 percent, with a 38.7 percent margin that the company called its highest third-quarter margin since it narrowed its focus to connectivity services several years ago.

Debt Overshadows the Beat

Despite the operating strength, AT&T shares declined on the day, falling roughly 5 percent in early trading before extending losses, according to a market report from Investing.com. The drop reflected investor unease over AT&T's balance sheet rather than the quarter's headline numbers. Net debt rose to $149.8 billion at the end of September from $126.4 billion three months earlier, and the ratio of net debt to adjusted EBITDA climbed to roughly 3.1 times from 2.68 times in the prior quarter — a jump tied almost entirely to AT&T's purchase of wireless spectrum licenses from EchoStar earlier this year.

That leverage increase came even as AT&T's reported bottom line was depressed by a separate, unrelated item: a $2.6 billion non-cash impairment charge on its Mexican wireless unit, now classified as held for sale. Diluted earnings per share from continuing operations on a GAAP basis fell to 13 cents, down from $1.29 a year earlier, a comparison that is also distorted because the year-ago period included a one-time gain tied to AT&T's DIRECTV stake. Free cash flow, which strips out many of those swings, rose to $5.0 billion for the quarter, roughly in line with the prior year.

Analysts covering the stock pressed AT&T executives on the call about how quickly leverage would come down and whether fiber penetration, now in the low 40-percent range of locations passed, could keep climbing, according to a summary of the earnings call published by GuruFocus. Chief Financial Officer Pascal Desroches said management still expects leverage to ease as EBITDA grows and as spectrum-related spending normalizes, with net debt to adjusted EBITDA targeted back near 2.5 times by 2029.

"Our competitors cannot and will not match our operating proficiency" in the dense urban and suburban markets where AT&T has concentrated its fiber build, Chairman and Chief Executive John Stankey told analysts on the earnings call.

Exiting Mexico, Doubling Down on Fiber

The quarter's results arrived a week after AT&T agreed to sell its Mexican wireless business, the country's second-largest mobile carrier with about 24.7 million subscribers, to a consortium of broadcaster Grupo Televisa and investment firm Fintech Holdings for $2 billion in cash. That transaction, announced October 13 and reported in detail by Light Reading, is expected to close in early 2027 pending Mexican regulatory approval and is the reason for this quarter's impairment charge. It also means AT&T's 2027 and 2028 financial targets, laid out alongside Wednesday's results, now exclude Mexico entirely.

The divestiture fits a pattern AT&T has followed since shedding DIRECTV and WarnerMedia earlier this decade: narrowing its focus to U.S. fixed and mobile connectivity and redirecting capital toward fiber and wireless infrastructure at home. The company closed its purchase of Lumen Technologies' mass-market fiber business in February and has spent heavily this year on spectrum, moves that collectively help explain both the subscriber growth investors cheered and the debt load they did not.

The results touch a broad set of stakeholders. AT&T's roughly 140 million wireless and broadband customers are, on the whole, the beneficiaries of a faster-expanding fiber footprint and a wireless network the company says is being built out further. Shareholders received about $4.8 billion in capital returns during the quarter, including $2.8 billion in share buybacks, and the company kept its quarterly dividend at 27.75 cents a share, unchanged for a 43rd consecutive year of payouts, a streak AT&T has guarded closely even through leaner periods. Bondholders and ratings agencies, by contrast, are the audience most likely to scrutinize the leverage increase, since AT&T's ability to keep investing in fiber while returning cash to shareholders depends on credit markets continuing to view its balance sheet as manageable.

What Comes Next

AT&T raised its full-year 2026 adjusted earnings guidance to approximately $2.40 a share, up from a prior range of $2.25 to $2.35, and said it still expects free cash flow of at least $18 billion for the year. For 2027 and 2028, the company lowered its planned annual capital investment to a range of $22 billion to $23 billion, down from levels assumed earlier this year, which it said reflects efficiencies in the fiber build rather than a pullback in ambition. Full-year free cash flow guidance was raised to at least $19 billion for 2027 and $21 billion for 2028.

Management's immediate task, based on the questions raised on Wednesday's call, is demonstrating that leverage will recede on schedule without slowing the fiber and convergence push that has become the centerpiece of AT&T's pitch to investors. The Mexico sale still needs regulatory sign-off before it closes, and AT&T's next full quarterly report, covering the final three months of 2026, will be the first opportunity for the company to show whether this quarter's record broadband additions were a high-water mark or the new baseline. In the meantime, AT&T's crosstown rivals Verizon and T-Mobile — both circling the same fixed-wireless and convergence customers — are among the only industry participants with a more immediate reason to parse the quarter's details.