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Telefonica Drops as Earnings Trail Estimates on Higher Costs

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May 10 (Bloomberg) -- Telefonica Brasil SA, Brazil’s largest phone company by revenue, dropped to a two-week low after first-quarter profit trailed analysts’ estimates on higher costs associated with bringing all its services under the Vivo brand.

Shares dropped 1.1 percent to 54.10 reais at the close in Sao Paulo, the lowest since April 27. It was the worst performer on the the MSCI Brazil/Telecommunication Services Index, which gained 0.1 percent. The benchmark Bovespa index advanced 0.1 percent.

Net income fell 15 percent to 956.6 million reais ($486 million) in the first quarter, from 1.13 billion reais a year earlier, the Sao Paulo-based phone company said in a regulatory filing. The average estimate was for an adjusted profit of 1.03 billion reais, according to six analysts surveyed by Bloomberg.

“Costs and expenses rose because of operational integration with Vivo,” pressuring earnings before interest, tax, depreciation and amortization margins, Marco Aurelio Barbosa, an analyst at Coinvalores Corretora, wrote in a report to clients.

Operating costs increased 5.6 percent in the quarter from a year earlier, helped by a 32 percent jump in expenses with staff, according to the filing. The company spent 130.2 million reais on restructuring and 21.5 million reais on branding.

Telefonica has gained 30 percent in the past 12 months as the company completed last month the reorganization of its mobile, internet, cable TV and fixed-line services under the Vivo brand. The benchmark slipped 8 percent in that period.

Vivo, Telefonica’s mobile-phone operator in Brazil, boosted its number of users by 21 percent in the first quarter to 74.8 million. Fixed-line clients of unit Telecomunicacoes de Sao Paulo SA, or Telesp, rose 1.3 percent to 15.3 million.

To contact the reporters on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net; Taís Fuoco in Sao Paulo at tfuoco1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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