What to Look for in Telefonica's 1Q Earnings: Three Charts

  • Latin American operations under pressure from currency slide
  • With U.K. deal under threat, Spanish operator looks elsewhere

Telefonica SA, Spain’s biggest phone company, will update investors on its earnings and plans to cut expenses in Jose Maria Alvarez-Pallete’s first public presentation since becoming chairman this month. With European Union regulators threatening to scuttle a deal to sell Telefonica’s U.K. wireless unit, investors are looking for other ways the company can reduce debt and restart growth.

Telefonica has the highest ratio of net debt to earnings before interest, taxes, depreciation and amortization among Europe’s five largest phone companies, according to Bloomberg data. Leverage has been climbing since 2013 and is at its highest since at least mid-2002. The carrier has promised to cut its 49.9 billion euro ($56.6 billion) debt to keep its investment-grade credit rating, using proceeds from the sale of its U.K. unit. Pallete needs an alternate plan if the deal gets scuttled by the EU.

Revenue may fall to the lowest since the second quarter of 2005, according to estimates by seven analysts tracked by Bloomberg. Sales are suffering from sluggish performance in Spain and a currency slide in Brazil, its second-biggest market, and other Latin American countries.

Currency swings are another big challenge for Telefonica. It’s the European telco with the biggest presence in Latin America, which has exposed the company to a regional drop in currencies. The region accounts for 54 percent of sales, which means that the euro’s strength relative to those of its main markets in the region, such as Brazil, Argentina and Peru, is bad news.

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