Why are Telstra shares tumbling today?

The market hasn't reacted positively to Telstra's FY 2023 results.

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Telstra Group Ltd (ASX: TLS) shares are having a tough time on Thursday.

In morning trade, the telco giant's shares are down 3% to $4.12.

Why are Telstra shares tumbling?

Investors have been selling Telstra shares this morning in response to its FY 2023 results.

For the 12 months ended 30 June, Telstra reported a 5.4% increase in total income to $23.2 billion and a 9.6% lift in underlying EBITDA to $8 billion. The key drivers of this growth were the company's Mobile and International businesses.

Mobile EBITDA rose 15.1% to $4,602 million and International EBITDA increased 84.2% to $713 million. This offset softer earnings from the company's Fixed businesses.

Looking ahead, the company is expecting further EBITDA growth in FY 2024. Management has provided underlying EBITDA guidance of $8.2 billion to $8.4 billion, which represents 2% to 5% growth.

In other news, Telstra has decided to maintain the current ownership structure of InfraCo fixed, at least for the medium term. This may have disappointed investors that were expecting value to be unlocked from an asset sale and capital return.

How does this compare?

Telstra's EBITDA was at the very top of its guidance range of $7.8 billion to $8 billion and ahead of the consensus estimate of $7.94 billion.

The consensus estimate for FY 2024 was for EBITDA of $8.35 billion. So, while Telstra's guidance of $8.2 billion to $8.4 billion is in line with this, the company would have to hit the top end of its range to achieve the market's expectations.

This may explain why Telstra shares are falling today.

Broker reaction

Goldman Sachs believes that Telstra delivered a "strong result" for FY 2023. However, it notes that its guidance was a touch softer than expected.

It commented:

In-line result with Mobile and strong cost performance offsetting weaker Fixed enterprise/wholesale and International restructuring.

Mid-point of FY24 guidance marginally below GSe/consensus, with capex also higher on international investments. Key changes to FY25 earnings targets (cost, NAS, NBN re-sale) are consistent with our expectations (and we believe market expectations).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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