AT&T expects big things after acquisitions

AT&T Inc. (NYSE:T) says it expects big things from its most recent acquisitions. The company updated its financial outlook for 2015 and beyond and says it should see boosts in revenues, adjusted earnings and free cash flow this year and in each of the next three years following its acquisitions of DirecTV as well as Mexican wireless companies Iusacell and Nextel Mexico.

The DirecTV acquisition made AT&T the largest provider of pay-TV services in the world (see "AT&T closes DirecTV acquisition"). The wireless additions expand the company's addressable market for mobile services. Not surprisingly, AT&T therefore expects its largest revenue sources over the next several years to come from (in descending order) Mobility and Business Solutions (both wireless and wireline); Entertainment & Internet; Consumer Mobility; and International Mobility and Video.

Meanwhile, as it promised the Federal Communications Commission (FCC) as part of its negotiations for approval of the DirecTV deal, AT&T also says it will expand it fiber-optic broadband footprint to a total of more than 14 million residential and business customer locations. Overall, the company expects to extend high-speed Internet service options to reach more than 60 million customer locations by the end of 2018. Meanwhile, the addition of satellite-based video as an option will enable the company to offer video services to 57 million broadband customer locations, roughly twice the count possible before the merger.

With these new capabilities in mind, plus the usual promises of synergies, AT&T guided the following for 2015:

• Double-digit consolidated revenue growth due to the DirecTV acquisition
• Adjusted earnings per share in the $2.62 – $2.68 range
• Capital spending to be in the $21 billion range, including capitalized interest from spectrum
• Free cash flow in the $13 billion range or better with an improving free cash flow dividend payout ratio.
  

For 2016 through 2018, the company expects in each year to see:

• Consolidated revenue growth in line with GDP growth or better
• Adjusted earnings per share growth in the mid-single digit range
• Adjusted consolidated margins that expand from current levels
• Capital intensity, including merger-related items, in the 15% range of revenues or lower
• Improving free cash flow with a free cash flow dividend payout ratio in the 70s percent range.
  

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