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AT&T Ups Revenue, Profit Forecast on DirecTV Buy

The DirecTV purchase gives AT&T access to new avenues of growth beyond its maturing wireless service.

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AT&T said Wednesday it expects revenue, earnings and free cash flow to grow through 2018 but sees higher capital expenditure following its DirecTV purchase and investments in Mexico.

AT&T shares were down about 2 percent to $33.90 in afternoon trading. Through Tuesday’s close of $34.65, they had risen 3.2 percent this year.

In a financial outlook statement released in advance of an analyst conference, the U.S wireless carrier said it expects revenue to grow in the double-digit range for the rest of 2015. The company, which previously forecast capital expenditure of about $18 billion, said it sees that rising to about $21 billion, including integration costs.

AT&T, which closed its $48.5 billion acquisition of DirecTV in July, forecast 2015 adjusted profit of $2.62 per share to $2.68 per share. Analysts on average were expecting a profit of $2.60 per share, according to Thomson Reuters I/B/E/S.

As the U.S. wireless market reaches saturation, AT&T hopes to tap into DirecTV’s business and has been expanding its wireless operations in Mexico to grow revenue.

AT&T also plans to deliver video content through ad-supported TV streaming and mobile video products while building out its advertising technology to unlock new revenue.

The newly expanded AT&T leapfrogs the biggest U.S. cable company Comcast. The company serves more than 26 million U.S. customers and more than 19 million in Latin America, making it the world’s biggest pay-TV company.

The No. 2 U.S. wireless carrier has bundled its wireless service with DirecTV’s pay-TV offerings to cross-sell products across its expanded customer base.

The new packages, which were rolled out on Monday, have “exceeded sales expectations on launch,” CEO Randall Stephenson told analysts at a conference without providing details.

On Wednesday, the company maintained its forecast of $2.5 billion or more in cost savings or synergies from the DirecTV deal on an annual basis through 2018.

In response to an analyst’s question about whether AT&T’s cost-savings forecast was conservative, Chief Financial Officer John Stephens said he had to factor in foreign currency fluctuations in DirecTV’s markets such as Brazil and Venezuela.

The target of $2.5 billion in cost savings is achievable and “it could break to the upside,” Stephenson said.

The company is “creating a new category” of combined wireless and TV services and that’s why the cost-savings goal did not include new revenue opportunities, such as cross-selling products, he said.

(Reporting By Malathi Nayak in New York and Lehar Maan in Bengaluru; Editing by Sriraj Kalluvila and Andrew Hay)

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