TeliaSonera Profit Falls as Low-Margin Equipment Hurts Sales

TeliaSonera AB, Sweden’s largest phone operator, reported a decline in first-quarter profit as sales of lower-margin equipment and connect fees eroded revenue.

Net income fell 4 percent to 3.95 billion kronor ($600 million) in the three months through March, the Stockholm-based carrier said in a statement today. Analysts on average projected profit of 3.97 billion kronor, according to data compiled by Bloomberg. Sales slipped 2.5 percent to 24 billion kronor, in line with analyst estimates.

TeliaSonera has expanded in Turkey, Russia and several former Soviet Union countries to offset slowing sales in its home market as competition and lower fees hurt prices. The Swedish government-controlled company has cut jobs and is focusing more on data revenue to boost profitability. In the first quarter, mobile revenue was eroded by lower equipment sales and connecting fees, the company said today.

“Geographically, focus remains on the markets where we are already present, with strict criteria for return on capital,” Chief Executive Officer Johan Dennelind said in the statement. “We have a prudent but pragmatic approach to mergers and acquisitions and will mainly aim for potential consolidation opportunities in existing markets.”

TeliaSonera shares gained 0.7 percent to 45.93 kronor as of 9:38 a.m. in Stockholm, paring the decline for the year to 14 percent. “The numbers should be encouraging,” analysts at Citi said in a note to clients. The biggest downside was in the single market of Spain, while the main Nordic regions showed more positive results, they said.

TeliaSonera sales in local currencies and excluding acquisitions and disposals will be at the same level as last year, although there is “slightly increased” risk to lower revenue related to lower-margin equipment, Dennelind said. It sees the margin on adjusted earnings before interest, taxes, depreciation and amortization level with the 35 percent it had in 2013.

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