AT&T Lifts Sales Outlook, Sees Financing Cutting ProfitScott Moritz
AT&T Inc. boosted its 2014 revenue forecast, while predicting adjusted earnings per share will come in at the lower end of an earlier range, as more wireless customers opt to buy new phones on installment plans.
For the second quarter, AT&T said it expects to add more than 800,000 monthly customers. About half of customers buying new phones opted for Next, AT&T’s financing plan, the company said in a statement. Next customers accounted for about 40 percent of phone sales in the first quarter.
Wireless companies are turning to installment plans to attract customers who are willing to pay for smartphones that can cost as much as $650 and who don’t want to sign up for two-year commitments. The trend has given carriers like AT&T a boost in device sales since they don’t have to offer as many discounts for smartphones. On the other hand, monthly service bills shrink because the carriers are no longer charging to make up for device discounts they used to offer upfront.
AT&T said wireless-service revenue won’t grow in the second quarter due to the shift to installment plans, which was spurred by T-Mobile US Inc. last year.
Revenue will rise about 5 percent this year, the company said. AT&T had previously projected growth of 4 percent. Adjusted earnings per share are projected to rise at “the low end of a mid-single digit range” after the company in April had forecast growth in “the mid-single digit range.”
Analysts were forecasting a 3.6 percent gain in revenue this year, according to estimates compiled by Bloomberg. They had also been projecting an 8 percent gain in adjusted earnings per share.
The stock fell less than 1 percent to $35.20 at the close in New York. The shares are little changed this year.
AT&T reiterated forecasts for capital spending in the $21 billion range and for $11 billion in free cash flow this year.
The revised outlook doesn’t include the impact of DirecTV, which AT&T agreed to purchase last month for $48 billion. The acquisition of the biggest U.S. satellite-TV carrier is expected to close next year.
The company is spending $14 billion over three years to upgrade its network as part of a plan called Project VIP, helping it lure customers with more advanced services. The company said its fourth-generation, long-term evolution wireless network now covers almost 290 million people, and its high-speed broadband will reach more than 400,000 new business customers by the end of this quarter.