Telefonica Earnings Exceed Estimates on Latin America

Telefonica SA, Spain’s biggest phone company, reported fourth-quarter earnings that beat analysts’ estimates as sales growth in Latin America helped to offset revenue declines in its domestic market.

Operating income before depreciation and amortization fell 8.6 percent to 5.45 billion euros ($7.2 billion), the Madrid-based company said today in a statement. Analysts projected Oibda of 5.44 billion euros, the average of estimates compiled by Bloomberg. Net income fell 82 percent to 473 million euros, hurt by a loss from Telefonica’s position in bolivars, after Venezuela devalued its currency.

Telefonica may be gaining traction with its turnaround after Chief Executive Officer Cesar Alierta suspended dividend payments and sold assets including a stake in Telefonica Deutschland Holding AG. Still, earnings and sales are yet to rebound as Telefonica is forced to cut prices to fend off smaller rivals in the company’s shrinking home economy.

“The numbers look pretty encouraging,” said Paul Marsch, an analyst at Berenberg Bank in London, who has a “sell” rating for the stock. “There’s a whole bunch of one-off items but overall, in Latin America they delivered growth while the trend on the domestic market is good.”

Telefonica shares advanced 3.2 percent to 10.12 euros at 9:13 a.m. in Madrid. They had declined 3.8 percent this year through yesterday, and have lost almost half of their value in the past three years.

Bolivar Devaluation

The company is facing pressure from credit-rating companies over its net debt, which stood at 51.3 billion euros at the end of 2012. That’s equivalent to 2.36 times annual Oibda, missing the ratio of less than 2.35 Telefonica had targeted. Telefonica said it expects sales to grow this year and plans to cut net debt this year to less than 47 billion euros.

“Telefonica is still very much committed to reducing its debt level, and that’s positive for the market,” said Alexandra Delgado, an analyst at BCP Investimento in Lisbon. “The lack of precision on their revenue growth target shows how the company is cautious for this year.”

Sales dropped 2 percent to 15.8 billion euros, beating the 15.6 billion euros analysts predicted on average. Full-year sales fell 0.8 percent, missing the company’s forecast. In July, the carrier lowered its 2012 revenue-growth goal to at least unchanged, compared with a previous forecast for more than 1 percent growth.

Full-year net income fell 27 percent to 3.93 billion euros, hurt by writedowns of 949 million euros related to Telefonica’s stake in Telecom Italia SpA, 513 million euros for its Ireland assets and 417 million euros in Venezuela, related to its bolivar position.

Spain Plunge

In July, Telefonica suspended dividends to save 10 billion euros, one of several former European phone monopolies to curb payouts in a bid to conserve cash for network upgrades as the continent’s economy sputters.

Deutsche Telekom AG, which competes with Telefonica in markets including Germany, the U.K. and the Czech Republic, today reported fourth-quarter earnings before some items that missed analysts’ estimates because of higher spending to add customers in Germany and retain mobile-phone subscriptions in the U.S.

In Spain, Telefonica’s fourth-quarter Oibda slid 3 percent to 1.71 billion euros as sales dropped 14.3 percent to 3.62 billion euros. In Latin America, Oibda advanced 1.6 percent to 3.2 billion euros as sales climbed 4.2 percent to 7.94 billion euros. In Brazil, the region’s biggest market, Oibda rose 5.8 percent to 1.49 billion euros.

“Spain will remain a challenge,” Delgado said.

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