AT&T Sees Higher 1999 Profits
AT&T said Friday that 1999 earnings from operations will exceed Wall Street estimates. It also outlined changes in how the phone company plans to spend its money.
Separately, the company also announced that it will split its stock 3-for-2 after the purchase of cable operator Tele-Communications Inc. (TCOMA) and said it will buy back up to $4 billion in shares.
The long-distance phone company said it expects to earn between $4.20 to $4.30, excluding the impact of the TCI deal. Analysts surveyed by First Call Corp. have been estimating $4.09 in 1999.
The cable acquisition will dilute profits by about $1 a share, provided the merger closes as expected at the end of the first quarter.
AT&T shares (T), a component of the Dow Jones Industrial Average, rose 1/4 to 82 1/2 in morning trading.
The company expects 1999 revenue growth to range from 5 to 7 percent, including the effect of its purchases of TCI, Vanguard Cellular Systems and the IBM global network business.
AT&T expects the "acquisitions and investments to transform its revenue, cash-flow and asset base from dependence on a single product line - long-distance voice - to a more diversified portfolio of high-growth communications, information and video services," the company said.
Business services revenue is expected to climb between 7 and 9 percent as a result of continued growth in data, local and wholesale services, the company said.
AT&T Wireless Services is expected to achieve growth "in the high teens" in revenue and earnings before interest, taxes, depreciation and amortization.
That growth will offset an expected decline in consumer long-distance revenue of between 2 to 4 percent. AT&T cites falling prices stemming from a "hotly competitive market and the substitution of wireless services for calling card and other higher-priced long distance services."
To boost growth in its consumer division, AT&T said it is accelerating plans to offer telephone service via cable TV wires.
In 1999, AT&T and TCI will conduct 10 market trials in which they will co-market voice, video and high-speed data services. Tests will take place in two San Francisco Bay area communities, Chicago, Dallas, Pittsburgh, Seattle, Denver, Salt Lake City, Portland, Ore., and St. Louis. AT&T said it plans to offer cable phone service in most TCI markets in 2000.
In 1998, AT&T said it made sharp progress in slashing costs. Through the first three quarters, selling, general and administrative expenses were cut from almost 30 percent of revenue to less than 25 percent. The company expects to lower that ratio to 21 percent for 1999, excluding its wireless and local services businesses. Those businesses will require more money to achieve higher revenue growth, AT&T said.
AT&T estimated that its 1999 pro forma EBITDA would grow in the high teens, to $18 billion to $20 billion. Most of that cash will be reinvested in its businesses.
AT&T estimates 1999 capital speding of about $11 billion to $12 billion, higher than the previous estimate of $10 billion to $11 billion, reflecting a "decision to accelerate the upgrade of TCI cable systems in certain major metropolitan areas to increase video capacity and add power for telephony applications."
Indeed, much of the spending will be shifted from AT&T's core long-distance voice network into higher growth areas, primarily wireless, local, and data/IP services, the company said.
Written By Jeffry Bartash