Shares of AT&T (NYSE: T) fell 10.4% in July, according to data from S&P Global Market Intelligence. The telecommunications giant reported earnings that were better than analysts expected but gave a bleak forecast for free cash flow generation in 2022. Despite the S&P 500 rising 9.1% in July, AT&T's stock sank as a result.

AT&T released its second-quarter earnings on July 21. Revenue was $29.64 billion in the period, down from $35.7 billion a year ago but up 2%, excluding the impact of divested subsidiaries. Adjusted earnings per share (EPS) came in at $0.65, above the $0.61 management expected. AT&T is seeing solid growth from both its mobile phone business (about 800 thousand net adds in the quarter) and fiber communications business (about 300 thousand adds in the period). So what caused the stock to drop so much?

The lowlight from the report was management's guidance for cash flow generation this year. Higher capital expenditures needed for building 5G infrastructure and customers delaying payments due to a softening economy caused AT&T to drop its full-year free cash flow guidance from $16 billion to $14 billion. Seeing as free cash flow is the true measure of profitability for a business and that AT&T will need a healthy dose of it to pay down all its debt, it is no surprise investors reacted negatively to this news.

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Source Fool.com