AT&T raises revenue expectations on wireless growth

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AT&T Inc.

T 0.08%

said its core telecommunications profits are growing even as its Hollywood footprint is set to shrink, underscoring its decision to exit the entertainment business in the coming year.

The media and telecommunications giant said it was focused on continuing to expand its broadband business and cellphone subscriber base while moving away from satellite TV and the Internet. media production. Prior to this retirement, the company raised its financial projections for the entire year. The company now expects consolidated revenue growth of between 2% and 3%, against a previous target of around 1% growth.

AT&T decided in May to split its media brands, including HBO, CNN, TNT, TBS and the Warner Bros. studio, into a new publicly traded company with Discovery Inc. The move followed an agreement reached in February to divest a 30% stake. into AT & T’s pay-TV unit while relinquishing operational control of the company, which will be called DirecTV at close.

“We want to achieve a high exit speed with these two companies, at which point the combination with the right partner only extends to the respective success opportunities,” said managing director John Stankey on a call with analysts.

AT&T also brought much of its digital advertising business, known as Xandr, to market in 2020. The company said on Wednesday that it would sell its remaining satellite TV business in Latin America, called Vrio, to the Argentinian Grupo Werthein. The deal, slated to close in 2022, is expected to result in an accounting charge of $ 4.6 billion for AT&T.

AT&T has increased its wireless subscriber base over the past year by offering deep discounts on smartphones in exchange for long-term commitments, prompting rivals Verizon Communications Inc.

and T-Mobile US Inc.

to respond with their own promotions.

“We are still in third place in the market,” said Jeff McElfresh, head of the company’s telecommunications division. “We stay focused on what customers want, and as long as we get a positive response, we’re going to stick with it.”

The discounts, while expensive, helped AT&T post a net gain of 789,000 postpaid phone subscribers in the second quarter. Investors appreciate postpaid plans, which charge customers for the service once it is rendered, as account holders tend to generate reliable profits.

Verizon announced Wednesday that it gained 275,000 postpaid telephony customers in the last quarter. T-Mobile is expected to release its results next week.

On the entertainment side, WarnerMedia’s HBO unit ended the quarter with 47 million domestic subscribers to HBO and HBO Max, up from 44.2 million three months earlier. Those numbers included new subscribers to HBO Max as well as customers paying for traditional HBO service, typically through a cable company.

WarnerMedia’s revenue grew about 31% in the last quarter, reflecting a partial recovery in the impact of the pandemic with the return of ad sales. The entertainment company also highlighted the increase in content sales and the increase in subscription revenue as HBO Max grew.

Overall net income attributable to AT&T reached about $ 1.87 billion, or 21 cents per share, from $ 1.23 billion, or 17 cents per share, a year earlier, when write-downs, severance pay and other accounting adjustments hurt earnings. Total revenue increased 7.6% to $ 44 billion.

The company’s reported net debt fell by nearly $ 1 billion, from about $ 169 billion at the end of the previous quarter. CFO Pascal Desroches said he expects the sale of DirecTV’s stake to close next month, allowing the company to start paying off more debt in the years to come.

“There is a lot of noise around the company and in the popular media, but those who really choose to focus on what we did last year should come away saying, ‘This is a company that really is. focused, they perform and the future is much brighter than the past, ”said Mr. Desroches.

AT&T also raised its full-year profit forecast, calling for growth in adjusted earnings per share in the low to mid-range figures. The company had previously forecast earnings per share unchanged from 2020. It also increased its free cash flow forecast for the full year by $ 1 billion to around $ 27 billion.

However, these projections did not take into account the pending sale of DirecTV’s participation. AT&T said the sale would reduce 2021 free cash flow to $ 26 billion and reduce $ 9 billion in annual income on its income statement if the deal goes through in the coming weeks. Adjusted earnings would continue to grow as expected.

AT&T became America’s third-largest wireless network operator after T-Mobile US took second place last year by acquiring Sprint Corp. Dish Network Corp. made progress thanks to an agreement negotiated by the Ministry of Justice to build a fourth national system. Some of its cell phone towers are expected to be commissioned later this year.

Earlier this month, AT&T reached a deal to route Dish’s mobile phone network traffic, which includes Boost Mobile, over its wireless network, as the two companies look to expand or, in the case of Dish Network. , to enter the 5G domain.

Dallas-based AT&T is doubling down on core network operations as it prepares to merge WarnerMedia with Discovery next year. CEO John Stankey said the move would better satisfy a more cautious telecommunications investor base while allowing the combined media company to pursue a more aggressive growth strategy overseas.

The split will also allow AT&T to reduce its dividend to shareholders, which cost it around $ 15 billion last year.

WarnerMedia competes with Walt Disney Co. and others to build up a streaming media presence that can match Netflix Inc.’s global reach. Its effort is complicated by deep-pocketed tech companies such as Apple Inc. and Amazon.com Inc. . who spend tens of billions of dollars a year on media content.

Including overseas accounts, AT&T said global HBO subscriptions reached 67.5 million. The company predicts that global subscriptions will reach 70-73 million by the end of 2021, thanks to its expansion in Latin America and Europe.

Write to Drew FitzGerald at [email protected]

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