Why AT&T Inc. (NYSE:T) Expects $130 Million Charge In 1Q

AT&T Inc. (NYSE:T) expects pressure on its 1Q2015 results to be higher than a year ago. However, the telecom carrier expects to continue preparing the ground for future growth through acquisitions and workforce reduction, which are some of the reasons there will be more pressure in the current quarter’s earnings.

Why are analyst so optimistic about T?

Special retirement agreement

AT&T Inc. (NYSE:T) reached a voluntary retirement agreement with some of its employees who will be leaving at the end of this month. For that reason, the company expects nearly $130 million adverse impact on its current quarter earnings. Under the voluntary retirement deal, AT&T will make a lumpsum payment to about 3,000 workers to leave employment. The company will also make some payments to the group of workers that is leaving the company under the special terms.

While the exit of the employees will have immediate impact on earnings, AT&T Inc. (NYSE:T) will be able to benefit from cost-savings in the future.

Impact of acquisitions

AT&T Inc. (NYSE:T) further noted that the cost of the deal to buy Mexico’s wireless operator, Iusacell, will also hurt its financial performance in 1Q2015. The company agreed to pay $1.7 billion for Iusacell, a step that will give it access to the lucrative Mexican wireless market, where growth potential is huge because of low wireless penetration.

AT&T Inc. (NYSE:T) also expects to close the deal to acquire satellite TV provider, DirecTV (NASDAQ:DTV) in the first half of this year. It agreed to pay nearly $49 billion for DirecTV in a dealing whose regulatory approval is still pending.

Pressure on margins

The other adverse impact on 1Q earnings is expected come from depressed profit margins at both its wireline and wireless businesses. Wireline margins are expected to suffer because of the company’s move to sale wireline assets in Connecticut and some non-cash adjustments in benefit expenses. The exit of low-cost businesses in the wireline segment is also expected to hurt margins.

As for the wireless operation, AT&T Inc. (NYSE:T) expects the adoption of the so-called Mobile Share Value plans to put pressure on wireless margins in 1Q.

 

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Standley Adam

Standley Adam

Adam is a staff reporter for US Markets Daily Publications & Media, covering foreign affairs and domestic policy.