AT&T's Q1 2025 Results: Navigating Adjusted Metrics to Uncover a Path to Profitability

AT&T's first-quarter 2025 earnings highlight a company balancing strategic pivots with financial discipline. While the telecom giant reported a GAAP net income of $4.7 billion—a 24% year-over-year increase—the adjusted diluted EPS of $0.51 lagged behind the GAAP figure of $0.61. This divergence underscores the importance of scrutinizing both GAAP and non-GAAP metrics to assess AT&T's true trajectory.

GAAP Profitability vs. Adjusted Metrics: What's Driving the Gap?

AT&T's GAAP net income reflects its core operations, including gains from its soon-to-be-sold DIRECTV stake. However, the adjusted diluted EPS excludes certain non-operational items, such as restructuring costs and equity income from DIRECTV. For Q1 2025, these adjustments reduced the EPS by $0.16, primarily due to the exclusion of $0.15 from DIRECTV and $0.05 from restructuring expenses.

The exclusion of DIRECTV's income is a deliberate move to isolate AT&T's performance in its core wireless and fiber businesses. This adjustment is critical because the company plans to finalize the sale of DIRECTV to TPG in mid-2025. By stripping out one-time gains from the stake, investors can better evaluate AT&T's standalone operations.

Operational Strengths: Fiber Growth and Debt Reduction

AT&T's Q1 results shine in areas critical to long-term profitability:
1. Fiber Expansion: Consumer fiber broadband revenue rose 19% year-over-year to $2.1 billion, driven by 261,000 net adds. Over 40% of AT&T Fiber households now also use wireless services, creating cross-selling opportunities.
2. Subscriber Momentum: Postpaid phone net adds hit 324,000, with churn at a historic low of 0.83%. AT&T Internet Air added 181,000 subscribers, extending its streak of positive broadband net adds to seven quarters.
3. Debt Management: Net debt fell to $119.1 billion, within AT&T's 2.5x net leverage target. This progress enabled resumed share repurchases in Q2, signaling confidence in cash flow stability.

Risks and Considerations

Despite these positives, challenges linger:
- Business Wireline Declines: Legacy services dragged down segment revenue by 9.1%, though fiber and advanced connectivity showed growth.
- Non-GAAP Adjustments Volatility: Mark-to-market pension adjustments and litigation costs could impact future EPS, though these are excluded from core metrics.

Why Investors Should Look Past Adjusted EPS Headwinds

The adjusted EPS shortfall is largely a product of strategic choices, not operational weakness. By focusing on fiber, 5G, and reducing debt, AT&T is positioning itself for sustainable growth. The $22 billion capital budget—targeted at expanding fiber passes to 29.5 million locations—supports this vision.

Moreover, free cash flow of $3.1 billion in Q1, up 10% year-over-year, suggests improving liquidity. With full-year free cash flow guidance of over $16 billion, AT&T appears on track to fund dividends and deleverage further.

Investment Takeaway: Hold for the Long Game

AT&T's Q1 results are a mixed bag on the surface, but the underlying story is one of transformation. Investors focused on short-term EPS trends might be deterred by the adjusted figures, but the company's execution in fiber, postpaid growth, and debt reduction bodes well for long-term profitability.

Recommendation: Hold AT&T stock for investors with a 3–5 year horizon. The fiber and 5G bets are high-conviction moves that align with secular trends in connectivity. However, short-term traders may want to wait for clearer visibility on the DIRECTV sale and its impact on cash flow.

In conclusion, AT&T's path to profitability is clear—but it requires navigating through adjustments that reflect strategic resets, not operational failure. For now, the balance sheet and growth levers point upward.