AT&T Forecasts Stronger Cash Flow In 2019 To Help Reduce Debt

AT&T forecast a strong increase in free cash flow next year, to USD 29.5 billion from a targeted USD 22 billion in 2018. The extra cash from the takeover of Time Warner should help the company meet its target to reduce debt to around 2.5x adjusted EBITDA by the end of 2019, the US operator announced at a meeting with analysts.

After an expected dividend in the high 50s percent range of free cash flow, AT&T said it expects to spend around USD 12 billion of cash flow paying down debt in 2019. It also aims to generate cash of at least USD 6-8 billion from other opportunities, including real estate sale-lease backs, sales of non-core assets and working capital initiatives.

Growth in cash flow will be supported by expected top- and bottom-line growth in 2019 from both the mobile business and WarnerMedia. AT&T said the mobile business is growing service revenue and EBITDA and will continue to do so in 2019. The Mexican operations should also show improving EBITDA and cash flow in 2019, as it reduces costs and capex following completion of the LTE network.

TV customer churn

For the Entertainment group, the group targets stable EBITDA next year, supported by continued growth in broadband subscribers and ad revenues and higher profitability from TV thanks to price increases. AT&T warned that DirecTV Now may start to lose customers already in Q4 2018 due to the recent price increases, and the linear TV business will lose customers coming off two-year price lock contracts in 2019.

AT&T also confirmed plans to launch a direct-to-consumer SVOD beta application in the fourth quarter of 2019. The company plans three levels of service: an entry-level movie-focused package; a premium service with original programming and blockbuster movies; and a third service that bundles content from the first two plus an extensive library of WarnerMedia and licensed content.

Synergies on track

The company expects total synergies from the Warner takeover to reach a USD 700 million run rate by the end of 2019, increasing to USD 2 billion by the end of 2020 and ramping to USD 2.5 billion by the end of 2021. About USD 1.5 billion of the final amount will be cost synergies, including efficiencies in marketing and procurement functions and corporate overhead. The remaining USD 1 billion are revenue synergies expected from additional sales opportunities, lower subscriber churn and higher advertising.

AT&T forecast a small increase in capital expenditure to around USD 23 billion in 2019, from an estimated USD 22 billion this year. This forecast excludes an expected USD 1 billion reimbursement on the FirstNet contract and includes potential vendor financing.

Adjusted EPS is expected to grow at a low single digit percentage rate in 2019. This excludes merger related amortisation charges of USD 7.5 billion, as well as an expected “significant” charge based on the mark-to-market of its benefit plan, which will depend on interest rates and investment returns. – Telecom Paper