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Portugal Telecom Net Drops on ‘Challengint’ Local Economy

Portugal Telecom SGPS SA, Portugal’s biggest telecommunications company, said second-quarter profit fell 17 percent amid a “challenging” domestic economy and currency effects holding back earnings in Brazil.

Net income dropped to 68.8 million euros ($84 million) from 82.3 million euros a year earlier, the Lisbon-based company said today in a statement. Sales fell 9.4 percent to 1.63 billion euros. Profit beat the 63 million-euro average of 12 analyst estimates compiled by Bloomberg, while revenue fell short of the 1.65 billion-euro prediction.

The former state monopoly is betting on its Brazilian unit to counter falling sales in Portugal, which is mired in a recession for a second consecutive year after a bailout in 2011. Portugal Telecom bought a stake in Brazilian operator Telemar Norte Leste SA, also known as Oi, in March 2011. Revenue at Oi fell 9.4 percent, and earnings before interest, taxes, depreciation and amortization dropped 22 percent.

“The slow progress being made on corporate restructuring in Brazil delays any eventual turnaround in that business and raises further questions on the ability of PT to pay its dividend,” Robin Bienenstock, a London-based analyst at Sanford C. Bernstein Ltd., said today in a note to clients.

Portugal Telecom fell as much as 2.61 percent to 3.28 euros, the lowest intraday price since July 27, and was trading down 1.8 percent at 12 p.m. in Lisbon, valuing the company at 2.97 billion euros. The stock’s price is also tied to investors’ expectations for Portugal’s economy and government performance amid the debt crisis, Bienenstock said.

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