AT&T has updated its financial guidance to take account of the acquisitions of DirecTV and Mexican operator Iusacell and Nextel, predicting revenue, earnings and free cash flow growth each year to 2018. For 2015, the first year of consolidating the takeovers, the US-based operator expects double-digit revenue growth, accelerating from just 0.8 percent in the first half of the year. Adjusted EPS is expected to grow to USD 2.62-2.68 from USD 2.51 in 2014, and free cash flow should reach at least USD 13 billion, up from USD 9.9 billion last year. Capital spending is estimated at around USD 21 billion, including capitalized interest from spectrum, little changed compared to USD 21.4 billion last year.
For the next three years (2016-2018), AT&T expects its revenue to grow in line with GDP or better, adjusted EPS growth in a mid single-digit range or better, improving free cash flow, and a dividend pay-out of ratio from free cash flow in the 70s percent range. Adjusted EPS excludes merger integration costs, asset revaluations and other one-time costs, while free cash flow is defined as operating cash flow minus capital expenditure. Capex is expected to fall to around 15 percent of revenue or less, while AT&T also expects improvement in its consolidated margins. The forecasts were outlined at an analyst meeting held by the company.
The forecasts are based in part on an expected USD 2.5 billion in annual cost synergies from the takeover of DirecTV by 2018. AT&T noted that this does not factor in potential revenue synergies, from cross-selling and expanded distribution of DirecTV and advertising opportunities. The company earlier announced new offers for its mobile and internet customers to subscribe to DirecTV and started offering DirecTV services in its shops in the US. With the takeover of the satellite TV provider, AT&T can now offer TV services at all 57 million homes where it can deliver broadband, compared to only about half those locations previously, where its U-verse fibre network is available.
The operator also sees potential for savings on capital investment. This includes moving to a common video platform with DirecTV, as well as transitioning to a common set-top box with the DirecTV Genie platform.
In addition, AT&T reiterated plans to continue upgrading its broadband access network. The aim is to deliver high-speed internet services to over 60 million homes by the end of 2018. The all-fibre footprint should reach 14 million household and business locations by the same date. AT&T said its roll-out of the GigaPower fibre services was already going better than expected, with higher penetration levels and lower deployment costs per site than originally forecast.
Following the takeovers, AT&T will report results going forward based on new operating segments. In decreasing order of revenue size, these are Mobility and Business Solutions (both wireless and wireline), Entertainment & Internet; Consumer Mobility; and International Mobility and Video.
