AT&T expects $2.5B in cost synergies from DirecTV deal, $21B spent on capex this year
Following a robust spending spree that saw it acquire DirecTV and a pair of Mexican mobile operators, AT&T provided an update on its financial expectations, including support for previous synergy predictions and plans to spend $21 billion in capital expenses this year.
The DirecTV deal was the most fiscally burdensome, though AT&T continues to expect the new asset to support at least $2.5 billion in annual “run-rate cost synergies” by 2018. AT&T initially said it expected the DirecTV deal would become accretive in free cash flow and adjusted earnings per share within 12 months of closing, and that it expects to generate more than $1.6 billion in cost savings per year between the two operations within three years of closing.
The carrier noted the updated financial mark does not include other “revenue synergy opportunities” like cross-selling of additional products and services, broader distribution of DirecTV services in AT&T’s 2,200 retail stores, and “enhanced advertising opportunities, such as local ad insertion.” AT&T has already begun the DirecTV integration process, including bundled offerings with its mobile product.
AT&T also continued to tout a common video platform that it expects to drive further cost efficiencies, and is continuing work on developing a new “over-the-top” video platform through its recent Otter Media joint venture with The Chernin Group and purchased stake in online media company Fullscreen.
Taking into account its new properties, AT&T increased its 2105 earnings per share estimate to as much as $2.68 per share with at least $13 billion in free cash flow. AT&T said that by year-end it expects mobility and business solutions that include both wireline and wireless assets to be its biggest revenue driver, followed by its newly formed Entertainment and Internet division, consumer mobility, and international mobile and video services.
Further ahead, AT&T said it expects to consolidate revenue growth in line with gross domestic product growth or better; adjusted earnings per share growth in the mid- to single-digit range; growth in adjusted consolidated margins; capital needs in the 15% range of revenue or lower; and improved free cash flow with a dividend payout ratio in the 70% range.
“We’re a different company than when we began the year and it shows in what we’ll be able to offer customers and in our financial outlook,” explained AT&T Chairman and CEO Randall Stephenson, in a statement. “We’ve diversified our capabilities, added significant scale in video and mobility, and can now deliver integrated services that set us apart from the competition. With our national retail presence, coast-to-coast TV and mobile coverage, and pervasive broadband footprint, we’re positioned like no other to lead the evolution of video and shape the future of the industry. We have the premier set of assets to redefine TV everywhere and deliver an entertainment experience that is truly unique.”
AT&T previously announced new high-speed Internet options as part of garnering regulatory approval for the DirecTV deal. Those plans include expanding broadband coverage to 15 million rural homes; to continue to offer a standalone broadband service providing at least 6 Mbps speed “where feasible” in current markets at a fixed priced for three years; to continue offering a standalone DirecTV service for at least three years; and to continue its commitment to net neutrality efforts.
AT&T in late June committed $3 billion to expand “high-speed, mobile Internet service” to 100 million people in Mexico by the end of 2018, which came on the heels of closing its $4.4 billion in combined purchases of Iusacell and Nextel Mexico.
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