America Movil Dives as Mexican Economy Slows Unexpectedly

America Movil SAB, the mobile-phone company controlled by billionaire Carlos Slim, lost a 10th of its value after saying slower Mexican economic growth hurt voice revenue in the fourth quarter and in January.

The shares slid 10 percent to 14.17 pesos at the close in Mexico City, the biggest decline since April 2008. The drop dragged down the benchmark IPC index, which fell 1.7 percent because Slim’s carrier makes up almost a fifth of its weight.

Revenue from wireless phone calls in Mexico, America Movil’s biggest market, continued to fall in January after declining 3.8 percent in the fourth quarter, Chief Executive Officer Daniel Hajj said today on a conference call. The slump is putting pressure on the company to seek growth in other areas, though those efforts have been met with mixed results. America Movil took a stake in the Netherlands’ Royal KPN NV last year -- an investment that has plunged in value.

“In Mexico, we are facing an unexpected slowdown of the economy,” Chief Financial Officer Carlos Garcia-Moreno said on the conference call. He said the shift was as unexpected as the one that happened last year in Brazil, when growth subsided to 1 percent, according to economists’ estimates.

Mexico’s economy expanded less than 3 percent in the fourth quarter, the slowest since June 2011, according to a Bloomberg survey of economists. Mexico accounted for about 35 percent of the company’s revenue in the fourth quarter.

Discount Smartphones

Profit at America Movil has also been hurt because it’s selling smartphones at a discount to lure customers into two-year contracts, Hajj said. While the subsidies will be worth it because they’ll encourage more spending on mobile Internet plans, they are a heavy burden for the company, he said. They’re likely to continue because only about half of customers on contracts have a smartphone, he said.

“We’re dealing with where and how we can subsidize less,” Hajj said. “What cannot stop is bringing in good customers to use all our data platforms.”

America Movil acquired a 28 percent stake last year in KPN, which is now selling $5.4 billion in shares to raise capital. To participate in the sale, Slim may impose conditions including a seat on KPN’s board and the replacement of Chief Executive Officer Eelco Blok, people familiar with the matter said.

The company is still studying KPN’s offer and plans to announce a decision early next week, Garcia-Moreno said today.

Wireless Fees

America Movil bid 8 euros ($11) a share for its KPN stake last year, citing the Dutch operator’s long-term growth prospects. Since then, the stock has tumbled to less than half that price. It closed at up 4.5 percent to 3.27 euros today in Amsterdam.

America Movil’s fourth-quarter earnings before interest, taxes, depreciation and amortization totaled 61.7 billion pesos ($4.86 billion), the Mexico City-based company said yesterday in a statement. That fell short of the 65.6 billion-peso average of six estimates compiled by Bloomberg.

Regulators in Mexico, Brazil and Colombia, which make up more than 70 percent of America Movil’s sales, have also cut into the company’s profits by cracking down on the fees wireless companies charge to connect calls from rivals. That has allowed competitors to trim consumer prices, putting pressure on America Movil, the Western Hemisphere’s most widely used phone company.

Peso Strength

“This isn’t the same America Movil as before,” said Martin Lara, an analyst at Corp. Actinver SAB in Mexico City who has a hold rating on the shares. “Before you had a high-growth company, then in the last few years you had a low-growth company.”

A stronger currency hurt America Movil’s sales and profits because the majority of its sales come from outside Mexico and are then translated into pesos in its financial statements. The Mexican peso averaged 12.94 per dollar in the quarter, compared with 13.61 pesos a year earlier, the company said.

Net income fell 8.2 percent from a year earlier to 15 billion pesos, or 20 centavos a share. Sales slid 1.1 percent to 198 billion pesos, topping the 191.6 billion-peso average of seven estimates compiled by Bloomberg.

Without the effect of the peso’s appreciation and leaving out sales of phones and other equipment, revenue would have risen 5.2 percent in the fourth quarter from a year earlier, America Movil said. That still marks a slowdown from 6.1 percent growth in the prior quarter.

America Movil added 5.6 million subscribers in the quarter for a total of 262 million, even after disconnecting 1.5 million customers because they had failed to use their lines. The average of three estimates for subscriber additions was 6.5 million.

Television customers rose 22 percent from a year earlier to 16.4 million, preserving America Movil’s lead over DirecTV as the biggest pay-TV provider in Latin America.

(For a recording of America Movil’s conference call today, click here.)

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