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Oi Gains After Cost Drop Shows Bradesco Turnaround Working

Oi SA, the second-worst performing telecommunications service provider in Latin America this year, rose after analysts at Banco Bradesco SA said a drop in costs shows that the company’s turnaround plan is starting to work.

The preferred shares gained 1.7 percent to 3.59 reais at the close of trading in Sao Paulo, the best performance on the MSCI/Brazil Telecom index, which rose 0.8 percent.

Oi, which replaced its chief executive officer in June and last month announced a merger with Portugal Telecom SGPS SA, said in a regulatory filing that costs fell 6 percent from the second quarter to 4.96 billion reais ($2.13 billion) in the three months through September. Expenses were 5.8 percent below the estimates of Banco Bradesco’s brokerage unit, according to a research note.

“Third-quarter results were slightly better than our expectations and the previous quarter, indicating that the company’s turnaround plan may already be producing results,” Luis Azevedo and Tales Freire, analysts at the bank, wrote in the note.

Oi cut expenses by trimming advertising costs and reducing the amount it pays when clients call other carriers’ customers, according to the filing.

Adjusted net income fell 49 percent in 2011 and 17 percent in 2012, with analysts forecasting a 27 percent decrease this year, according to the average estimate compiled by Bloomberg.

After taking the CEO job in June, Oi’s Zeinal Bava said he would reduce annual investments and focus on efficiency. Oi invested 1.5 billion reais in the three months through September, compared with 2 billion reais in the same period of last year.

The company’s adjusted net income fell 45 percent from a year earlier to 172.3 million reais in the third quarter, according to data compiled by Bloomberg after today’s earnings report. That compares with an average estimate of 227.8 million reais among four analysts surveyed by Bloomberg.

Oi has fallen 57 percent in 2013, while the telecom index dropped 23 percent.

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