Photographer: Martin Divisek/Bloomberg

Telefonica Sales Top Estimates on Spanish Broadband Demand

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Telefonica SA reported revenue that topped analysts’ predictions and boosted its sales forecast as Spain’s economic recovery spurred demand for packages of broadband, television and phone services.

Second-quarter revenue was 11.88 billion euros ($13 billion), beating the 11.7 billion-euro average estimate compiled by Bloomberg. With Latin America accounting for more than half of its business, full-year sales will increase more than 9.5 percent, an improvement of 2.5 percentage points from an earlier projection, Spain’s largest telecommunications provider said Thursday.

To help reach its target of returning the Spanish operations to growth in 2015 after years of declines, Telefonica has increased prices and focused more on higher-spending clients. While Spain’s unemployment topped 22 percent last quarter, the figure was the lowest in almost four years, adding to optimism about the country’s economic recovery.

Revenue in Spain still shrank by 1.1 percent last quarter. However, the unit reached “revenue stabilization” in May and June for the first time since December 2009, Chairman and Chief Executive Officer Cesar Alierta said in a statement.

Telefonica shares rose 1.6 percent to 13.98 euros at 9:03 a.m. in Madrid, valuing the company at 69 billion euros. They gained 17 percent this year through Wednesday.

Margin Erosion

Operating income rose 6.8 percent to 3.7 billion euros, stripping out depreciation and amortization. Analysts had predicted Oibda of 3.69 billion euros.

Telefonica said its full-year Oibda margin will probably decline by 1.2 percentage points, more than the 1 percentage point erosion predicted earlier, after including Spanish pay-TV provider DTS and Brazilian broadband provider GVT, companies that Telefonica has acquired over the past year.

The German unit on Tuesday reported higher sales after integrating rival E-Plus that was acquired from Royal KPN NV last year. The division’s importance for the European business has increased after Telefonica agreed to sell its O2 U.K. division to CK Hutchison Holdings Ltd. in March.

During the period Telefonica ended an eight-year investment in Telecom Italia SpA and was replaced by Vivendi SA as the largest shareholder in the Italian phone company. The Telecom Italia divestment resulted in a one-time gain of 380 million euros.

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