AT&T Floats Three-Year Plan as Response to Elliott Management


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AT&T Inc. (NYSE:T) Monday announced its three-year financial outlook and capital allocation plan, which it expects to drive significant growth in EBITDA margins and EPS, and allow the company to invest in growth areas, retire shares and continue to pay down debt. The plan is a response to activist investor Elliott Management, which, after recently taking a $3.2 billion dollar investment in the company said it wants to see changes in management and operations. (see previous Inside Towers story).

“The strategic investments we’ve made over the last several years have given us the essential elements to meet growing demand for content and connectivity,” said AT&T Chairman/CEO Randall Stephenson. The carrier expects Stephenson to remain CEO through at least 2020. “Our plan delivers both substantial and consistent financial improvements over the next three years,” he stated.

The three-year Capital Allocation Plan includes:

  • Dividend Growth & Payout Ratio: Continued modest annual dividend growth; dividends as percent of free cash flow of less than 50 percent in 2022;
  • Share Retirement: 50-70 percent of post-dividend free cash flow being used to retire about 70 percent of the shares issued for the Time Warner deal;
  • Debt Reduction: Retiring 100 percent of the acquisition debt from the Time Warner deal; a net-debt-to-adjusted EBITDA ratio between 2.0x and 2.25x by 2022;
  • Portfolio Review: Continued disciplined review of portfolio; no major acquisitions.

When combining AT&T’s current dividend yield along with planned share repurchases averaging more than three percent per year for the next three years, that provides shareholders a yield of about 8.5 percent per year — and a solid double-digit return when expected EPS growth is included.

The company said it will continue to actively review its portfolio, analyze the merits of each business and monetize non-core assets. In 2019, the company expects to close about $14 billion from monetizing non-core assets. In 2020, the company expects to monetize $5 billion to $10 billion of non-strategic assets.

In addition, the company said it will continue to refresh its Board as two directors retire over the next 18 months. Subject to Board approval, the company expects to add a new director at its next Board meeting, followed by another director in 2020. In both cases, the Board will continue to select directors with skill sets that align with the objectives laid out today. 

With its three-year financial outlook and the benefits of its capital allocation plan, AT&T expects adjusted EPS in the $3.60 to $3.70 range in 2020, and by 2022, expects adjusted EPS to be between $4.50 and $4.80. These EPS expectations include HBO Max investment of about 15 cents to 20 cents per share in 2020, and then about 10 cents per share investment in 2021 and 2022.

Third-Quarter Results: Communications Highlights


  • Service revenues up 0.7 percent in 3Q; up 1.9 percent year to date
  • 255,000 phone net adds (101,000 postpaid, 154,000 prepaid); 780,000 phone net adds year to date

The company completed or announced $3.5 billion in non-core asset monetizations in the third quarter. For the full year, the company expects to close about $14 billion of asset monetizations and working capital initiatives. Net debt was reduced by $3.6 billion in the quarter and reduced by $12.7 billion year to date. Net-debt-to-adjusted EBITDA at the end of the third quarter was 2.66x. 

October 29, 2019

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