AT&T (T) Q1 2026 earnings review
Core Connectivity Soars, But DIRECTV Exit Masks Bottom Line
AT&T's new segment reporting does exactly what management intended: it isolates the structurally advantaged 'Advanced Connectivity' business to show true operating leverage. In Q1 2026, Advanced Connectivity operating income jumped 14.8% YoY on just 4.7% revenue growth. However, headline Net Income fell 13.7% YoY. This optical miss is entirely driven by the absence of DIRECTV equity income (which added $1.4B in 25Q1) following its sale in 25Q3. Operationally, the company is humming, executing a massive $2.47B stock buyback in a single quarter while growing core service revenues. The only blemish is a slight deceleration in postpaid phone net adds and a tick upward in churn.
🐂 Bull Case
The new Advanced Connectivity segment proves the convergence strategy works. Operating margins expanded by 210 basis points YoY (24.1% vs 22.0%), driving a 15.7% consolidated Operating Income beat.
AT&T is walking the talk on capital returns. The company repurchased $2.47B of treasury stock in Q1 2026 alone, a massive acceleration compared to $218M in the year-ago quarter, signaling extreme confidence in its $18B+ FCF target.
🐻 Bear Case
Postpaid phone net adds dropped 9.3% YoY to 294,000, while postpaid phone churn rose 6 basis points to 0.89%. The core wireless business is facing intense competitive pressure.
While Latin America revenue grew 20.8% YoY, operating income plummeted 53.5%, compressing margins to a razor-thin 1.7%. Growth is coming at a steep cost.
⚖️ Verdict: 🟢
Bullish. Look past the headline EPS decline. The underlying telecom engine is expanding margins, fixed wireless adoption is accelerating, and the aggressive $2.47B Q1 buyback proves the cash flow story is real.
Key Themes
Advanced Connectivity Margin Expansion
AT&T's new segment structure finally unmasks its operating leverage. In Q1 2026, Advanced Connectivity revenues grew 4.7% ($28.47B), but operating expenses barely budged at 1.9%. This operational discipline resulted in a 14.8% surge in operating income. Advanced Home Internet was the standout, with revenues surging 27.3% YoY to $2.79B.
AT&T Internet Air Accelerates
Fixed Wireless Access (FWA) is no longer just a placeholder product; it is a primary growth engine. AT&T Internet Air added 239,000 net connections in Q1 2026, a 32% acceleration compared to 181,000 in Q1 2025. Total fixed wireless connections nearly doubled YoY to 2.33 million.
Aggressive Share Repurchases Deployed
Management promised aggressive capital returns and is delivering. The company spent $2.47 billion on treasury stock purchases in Q1 2026, compared to just $218 million in Q1 2025. This puts AT&T perfectly on pace to achieve its promised ~$8 billion buyback target for 2026.
Postpaid Phone Momentum Decelerating
A clear operational headwind emerged in the wireless business. Postpaid phone net adds fell 9.3% YoY to 294,000. Compounding the volume miss, postpaid phone churn ticked up to 0.89% (from 0.83% a year ago). While convergence helps profitability, AT&T is losing some ground in gross wireless volume.
The DIRECTV Earnings Void
While operating income was phenomenal, headline net income dropped 13.7%. This was caused by the 'Equity in Net Income of Affiliates' line item falling from a positive $1.44B in 25Q1 to a negative $41M in 26Q1 following the DIRECTV sale. Investors must be prepared for this optical drag on EPS for the next two quarters until comps normalize.
Latin America Profitability Reversing
Mexico operations are exhibiting severe growing pains. While segment revenues grew an impressive 20.8% YoY to $1.17B, operating expenses outpaced growth at 24.2%. As a result, operating income plummeted 53.5% YoY down to just $20 million, crushing the operating margin from 4.4% down to 1.7%.
Other KPIs
Decelerating. Legacy voice and data revenues collapsed 25.3% YoY, accelerating its long-term secular decline. Operating income for the segment dropped 39.9% to $612M. The rapid deterioration underscores the urgency of AT&T's copper network decommissioning target for 2029.
Accelerating. Total capital expenditures rose 14.0% YoY from $4.27B in 25Q1. This heavier upfront investment aligns with management's strategy to rapidly deploy fiber and integrate Lumen assets ahead of 2026's targeted $23B-$24B annual capex spend.
Guidance
Accelerating. This implies a significant step up from the mid-$16B range generated in 2025. It reflects the realization of $2.5B-$3.0B in anticipated cash tax savings (from the One Big Beautiful Bill Act) and expanding operating margins in the Advanced Connectivity segment.
Accelerating. Compared to the $2.12 achieved in FY2025, the midpoint ($2.30) represents an 8.5% YoY growth rate. Management expects this to be achieved despite modest near-term dilution from the Lumen and EchoStar acquisitions.
Accelerating. AT&T repurchased roughly $4.3B in 2025. The step-up to $8B in 2026 demonstrates immense confidence in the balance sheet and cash generation. The $2.47B executed in Q1 puts them perfectly on a $10B annualized run-rate, indicating front-loaded execution.
Key Questions
Postpaid Churn Normalization
Postpaid phone churn ticked up 6 basis points to 0.89%. How much of this is driven by increased competitive intensity versus the roll-off of aging device financing plans, and when do you expect this metric to stabilize?
Latin America Margins
Mexican wireless operations saw robust 20%+ top-line growth but a 53% drop in operating profit. What specific cost line items are driving this margin compression, and is the current 1.7% operating margin the trough?
Lumen Integration and NetworkCo
With capital expenditures up 14% this quarter, how much of this spend is directly related to the Lumen asset integration, and what is the exact timeline for bringing in the planned equity partner for NetworkCo?