Telefonica Earnings Miss Estimates on Weak Spanish Demand

Telefonica SA (TEF), Europe’s biggest investor in Latin American telecommunications, reported a 14 percent slide in first-quarter earnings, trailing analysts’ estimates, as Spanish demand continued to fall and the Argentine and Chilean pesos declined.

Operating income was 3.93 billion euros ($5.4 billion) leaving out depreciation and amortization, the Madrid-based carrier said in a regulatory filling today. Analysts had projected Oibda of 3.97 billion euros, according to the average of estimates compiled by Bloomberg. Sales fell 14 percent to 12.2 billion euros, also missing analysts’ estimates.

Chief Operating Officer Jose Maria Alvarez-Pallete, who has been given greater executive responsibilities, faces a slowdown in the Latin American business, which makes up about half of the carrier’s revenue. Telefonica Brasil yesterday reported shrinking profit on higher marketing expenses.

“While the story of the company remains intact, they will likely suffer from foreign-exchange rate effects in the current quarter as well,” said Andres Bolumburu, an analyst at Banco de Sabadell SA in Madrid, who recommends investors buy Telefonica shares. “I was expecting a better performance of the fixed-line business in Spain, though mobile did a lot better.”

Photographer: Angel Navarrete/Bloomberg

Customers browse mobile handsets on display inside a Telefonica SA store in Madrid. Close

Customers browse mobile handsets on display inside a Telefonica SA store in Madrid.

Close
Open
Photographer: Angel Navarrete/Bloomberg

Customers browse mobile handsets on display inside a Telefonica SA store in Madrid.

Telefonica shares fell 0.8 percent to 11.95 euros at 9:01 a.m. in Madrid, paring the advance to 0.8 percent this year and giving the company a market value of about 54 billion euros.

Pay-TV

The Spanish unit slowed a decline in its wireless business, with revenue falling 10 percent in the quarter after a 21 percent drop for 2013.

Telefonica is seeking to fend off intensifying competition from Jazztel Plc (JAZ) and Vodafone Group Plc in its home market. This week, it offered $1 billion to acquire a controlling stake in Promotora de Informaciones SA’s pay-TV unit to gain more flexibility in tailoring its Movistar Fusion TV packages.

During the quarter, the Argentine peso slumped 18 percent against the euro, while the Chilean peso fell 4.2 percent, cutting the value of profits from those countries when translated into Telefonica’s reporting currency. First-quarter net income for the company as a whole dropped 23 percent to 692 million euros.

Telefonica Deutschland Holding AG (O2D), the German division that is merging with Royal KPN NV’s E-Plus, yesterday reported Oibda and revenue that trailed analysts’ estimates. Chief Strategy Officer Markus Haas said the company still expects regulatory approval of the deal by next month, after the European Commission yesterday suspended its deadline on the review.

Irish Sale

The Spanish operator is also awaiting the EU’s verdict on the sale of its Irish O2 unit to Hutchison Whampoa Ltd. Approval may be facilitated by Liberty Global Plc’s decision to have its local UPC division offer mobile-phone services in the country, people familiar with the plans said this week.

Telefonica lost its spot as Europe’s largest phone operator to Germany’s Deutsche Telekom AG in 2013 as annual revenue dropped for a second consecutive year. The company has sold businesses including in the Czech Republic to reduce its financial burden. Net debt fell 5.9 percent to 42.7 billion euros during the last quarter.

To contact the reporters on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net; Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Robert Valpuesta, Ville Heiskanen

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.