AT&T Provides Update on Strategy, Guidance for 2019
- Free cash flow in the $26 billion range1
- Dividend payout ratio in the high 50% range1
- End-of-year net-debt-to-adjusted-EBITDA ratio in the 2.5x range
- Gross capital investment in the $23 billion range2
- Adjusted EPS growth percentage in the low single digits3
AT&T will webcast analyst meeting today at 4 p.m. ET
AT&T (NYSE:T) provided an update on its strategy following the acquisition of Time Warner, now known as WarnerMedia, as well as guidance for 2019. Guidance includes significant expected growth in free cash flow, which will help the company achieve its target of a debt ratio in the 2.5x range by the end of 2019, as well as a low single digit growth rate in adjusted EPS.
The company is hosting a meeting with financial analysts today to discuss its strategy and 2019 outlook. Presenters will include: Randall Stephenson, chairman and CEO; John Donovan, CEO of AT&T Communications; John Stankey, CEO of WarnerMedia; Lori Lee, CEO of AT&T Latin America; Brian Lesser, CEO of Xandr; and John Stephens, CFO. The meeting will be webcast on the AT&T Investor Relations website beginning at 4 p.m. Eastern time. Related materials will be available in the same location when the event begins.
“We are well positioned for success as the lines between entertainment and communications continue to blur,” said Randall Stephenson, AT&T chairman and CEO. “If you’re a media company, you can no longer rely exclusively on wholesale distribution models. You must develop a direct relationship with your viewers. And if you’re a communications company, you can no longer rely exclusively on oversized bundles of content.
“We have some of the world’s best content and 370 million direct-to-consumer relationships across mobility, video, broadband and our digital properties,”4 Stephenson said. “That exceptional combination enables us to deliver a broad spectrum of entertainment experiences — from premium video to skinnier over-the-top and mobile-centric bundles of live content, and a subscription video-on-demand product to launch late next year. And with Xandr, our advertising business, we’re using insights from our customer relationships, combined with our large advertising inventory, to drive higher yields on advertising.
“Our leadership position in communications and entertainment gives us a distinct advantage that will allow us to grow our share of both segments over time,” he said.
Highlights of what AT&T will cover in its analyst meeting today include:
Entertainment Group (video and broadband business)
- Entertainment Group represents about 15% of the company’s adjusted EBITDA5.
- This unit expects stable EBITDA in 2019, compared with 2018 levels. In 2019, the company expects:
— Growth in broadband revenues and subscribers as AT&T continues to expand its fiber network and adds additional higher-ARPU fiber subscribers.
— Increased profitability in OTT video, as shown by recent price increases, lower content costs and adjustments to promotions. This will likely result in negative net adds at DIRECTV NOW in the fourth quarter of 2018 and in 2019.
— A $1 billion improvement in linear video revenues driven by the remaining 2 million subscribers rolling off 2-year price locks and increased ad revenues from Xandr, AT&T’s advertising business, which grew revenues more than 20% in the third quarter of 2018.
- As the 2-year price locks roll off, the company expects a decline in linear video subscribers in 2019 consistent with the pace of decline in the third quarter of 2018.
— Voice revenue declines and amortization of commissions and installment costs will continue to impact EBITDA and operating income.
— Cost reductions driven by increased efficiency and automation will continue to provide cost savings.
AT&T Latin America
- The company expects to continue improving EBITDA and cash flows in its Mexico wireless operations in 2019.
— AT&T has more than 17 million wireless subscribers in Mexico, nearly double 2015 levels, and is the fastest growing wireless provider in the country.
- Mexico’s growing economy and expanding population offer opportunities for growth, and the company expects to continue to add subscribers. At the same time, it has opportunities to reduce costs and capital expenditures as it completes its LTE network build and systems integration work.
Vrio, AT&T’s video operations in 11 countries in Latin America and the Caribbean, expects to sustain cash generation in 2019.
— AT&T is using technology to reduce Vrio’s cost structure through initiatives like electronic billing and automation. The company also sees growth opportunities from its recent launch of over-the-top service DIRECTV Go in Colombia and Chile.
- AT&T expects continued strong growth in advertising revenues while it builds a premium advertising marketplace.
— Advertising represents a nearly $7 billion annual revenue stream for AT&T.8
— AT&T’s advertising unit Xandr grew revenues more than 20% on a comparable basis in the third quarter of 2018 and it plans to continue to deliver strong revenue growth in its existing media sales operations in 2019.