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AT&T Inc. (T)
Deutsche Bank 2016 Media, Internet & Telecom Conference Call
March 9, 2016 7:45 AM ET
John Stephens - Senior Executive Vice President and Chief Financial Officer
Matthew Niknam - Deutsche Bank
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Thank you. Thanks for having us.
So John, maybe just to start over the last year obviously a lot of changes at AT&T, obviously post the DIRECTV deal. As you look at 2016, maybe just to start, can you talk about your top priorities for the organization?
Sure, be glad to. Let me first start off with satisfying all the legal requirements by giving you our Safe Harbor that some of our comments today may be forward-looking, that they will be subject to risk and that for further information you should look to the AT&T website and to our SEC filings in making our decisions and judgments. So thanks for that. Thank Matt, thank you for having us.
With regard to 2016, I will give you three priorities that are pretty clear cut. One is the DTV merger integration. We need to focus on getting all that integration work or as much of it behind us as possible. That not only includes the cost savings activities but the operational, the systems, the processes, the single truck roll, getting not only the content pricing right but the content rights digital, mobile, all of those kinds of activities. So we are really focused on that. Our goal for the year is to come out of the year with a $1.5 billion cost run rate savings on track to a three-year goal of $2.5 billion or more.
Our second goal is really to focus on like we have been doing on taking this great set of assets and providing integrated coordinated products and services to our customers. So if you think about our business solutions group, they have done a great job of taking our business Wireline assets, coordinating with our Internet of Things capabilities and our Wireless capabilities to connect not only the products that our large customers have but their employees, their customers in a secure, safe, high quality way.
We are on track to do that with our mobility business and with our entertainment business and coordinating how we deliver an integrated solution that is easy to use and high value to our customers in video, in mobility, communications and broadband. So that is the second focus, getting the customer service aspect right.
The third focus is something we have got - have been going on for a while, it is becoming
the low-cost provider in our industry and for us that means fulfilling our Project Agile. We set a target out for $3 billion of run rate savings a few years ago. We are well on our way. We need to if you will complete that process. We are very optimistic, things are going very well. You saw the results in last year's margins and earnings per share. Those were driven by those efficiency efforts. And so that is the third focus.
We are coming out of a year where we had a lot of extremely good results, expanding Wireless margins in fact record margins in the fourth quarter, record margins for the year, really good growth in strategic services, good growth in our prepaid business really good growth in our Internet of Things connections. We've got the great entertainment product now in the DIRECTV acquisition. So we are coming out of a really good year and we are really optimistic that those trends can continue.
I should point out we also saw in the fourth quarter specifically some other trends. I think we continue to be focused on profitable products and so we will as we did last year shy away from those that are not panning out and you will see some of that going forward. I think you saw in the fourth quarter, it was a slowdown in the handset upgrade cycle or the total sales.
I wouldn't be surprised to see that continue and we will continue to see some foreign exchange issues in the fourth quarter with our expanded Latin America base, our Mexico base and quite frankly we still have a very large international business out of our business solutions group. I would suggest to you that we will see some of that going into 2016.
All of that being said, those are impacts possibly on revenues but very little impact at all on profitability because those are all hedged one way or another with the handset expenses or with expenses in foreign countries that are denominated in those same foreign currencies. So we are really very, very optimistic about 2016 and are really, really anxious to get off to a great start and to provide great service to our customers.
So to dovetail on that, you have laid out a plan for mid single-digit earnings growth or better through 2018 at your last Analyst Day. Can you help us deconstruct that as we think about core drivers of that outlook from a high level? And I guess what I am kind of getting at is part of what you alluded to is some of the revenue headwind from lower handset sales or FX but how much of your assumption for mid-singles earnings growth really is contingent on revenue growth and then are there other levers like you alluded to on the cost side?