AT&T Forecasts Earnings, Sales Growth Following DirecTV Deal

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AT&T Inc. forecast annual growth in profit and revenue through 2018 after buying DirecTV and two Mexican wireless companies.

Earnings per share excluding some items will be $2.62 to $2.68 this year, Dallas-based AT&T said Wednesday in a statement. Capital spending will be about $21 billion, including interest from airwaves assets, and free cash flow will be in the $13 billion range, the carrier said.

With its $48.5 billion takeover of DirecTV completed last month, AT&T is now the No. 1 pay-TV company in the U.S. The company also made its entry into the Mexican market this year with the purchase of Grupo Iusacell SA, that country’s third-largest mobile-phone operator, and Nextel Mexico. AT&T plans to build a national wireless service in Mexico and the first phase of a cross-border mobile service with the U.S.

The company now has the ability to offer consumers a bundle of as many as four services -- Internet, DirecTV satellite or U-verse TV, landline phone and wireless -- in two countries.

“Management is feeling quite confident about the integrated quadruple-play strategy and its positive impact on churn and revenue,” independent wireless analyst Chetan Sharma said in an interview. Churn is the term used for customer turnover.

AT&T reiterated its April outlook for cost savings from the acquisition of at least $2.5 billion by 2018. That’s up from its $1.6 billion forecast at the time the deal was announced in June 2014.

Annual revenue growth will be in line with or better than gross domestic product growth in 2016 through 2018, the company said. Earnings per share excluding some items will grow in the mid-single-digit range or better, it said.

One Bill

AT&T wants its monthly wireless customers to become DirecTV users while convincing DirecTV’s subscribers to add wireless to their packages, Chairman and CEO Randall Stephenson said Wednesday in an analyst conference.

In one offer, the company is dangling a $10 monthly credit to customers who agree to combine their wireless and satellite-TV bills together.

“It’s a very clear opportunity for AT&T to save some money from a content perspective and to up-sell and cross-sell services,” said Jan Dawson, an analyst with Jackdaw Research.

DirecTV and AT&T’s U-verse TV customers who switch their wireless service to AT&T from competitors like Verizon Communications Inc., T-Mobile US Inc. and Sprint Corp. will get a $300 credit for each line they switch. And DirecTV customers who buy a new mobile device from AT&T’s Next plan will receive an additional $200 per phone.

“They basically bought customers and now they’re going to bundle the heck out of them,” said Roger Entner, an analyst with Recon Analytics LLC in Dedham, Massachusetts. “To AT&T, it doesn’t matter if you’re watching a TV show on fiber, wireless, or satellite -- on their network or someone else’s. As long as you authenticate through them and they get the money.”

AT&T shares fell 1.8 percent to close at $34.02 in New York. The stock is up 1.3 percent this year.

Kevin Smithen, an analyst with Macquarie Securities USA Inc., said the company gave solid outlook on plans to win customers.

“I’m a little bit surprised by the stock reaction,” Smithen said.

Last month, before the DirecTV deal closed, the carrier reported second-quarter earnings excluding some items of 69 cents a share, topping the 64-cent average of estimates compiled by Bloomberg.

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