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November 11, 2010, 12:25 PM EST
By Paul Tobin
(Adds closing share price in fifth paragraph.)
Nov. 11 (Bloomberg) -- Telefonica SA’s record quarterly profit fell short of analyst estimates after an accelerated decline in domestic wireless revenue hurt Europe’s second- largest phone company.
Shares slid after the Spanish company’s third-quarter net income climbed to 5.06 billion euros ($6.95 billion) from 1.88 billion euros a year earlier, boosted by a gain related to its 7.5 billion-euro purchase of control of Brazil’s Vivo Participacoes SA. The profit was less than the average analyst estimate of 5.45 billion euros from a Bloomberg survey.
Chairman Cesar Alierta sought to reduce Telefonica’s dependence on its home country, raising his bid three times to convince Portugal Telecom SGPS SA to sell its part of their 50-50 venture that controlled Vivo, Brazil’s largest wireless operator. Spain’s economy stalled in the quarter as the deepest austerity measures in three decades undermined its recovery from an almost two-year recession, a government report showed today.
“Spanish trends have worsened, which is clearly a negative,” said Roger Appleyard, head of global credit research at RBC Capital Markets in London. “The picture in Brazil is a lot more encouraging.”
Telefonica shares declined 1.6 percent to 18 euros in Madrid. The stock has dropped 7.8 percent this year, compared with a 1.4 percent increase for the Bloomberg Europe Telecommunication Services Index.
Operating Income
In the latest quarter, sales climbed to 15.23 billion euros from 14.2 billion euros and operating income before depreciation and amortization jumped to 9.46 billion euros from 5.72 billion euros. Operating income by that measure was expected to reach 9.5 billion euros on sales of 15.1 billion euros, according to the survey.
Spanish sales fell 3.6 percent to 4.72 billion euros. Domestic wireless service revenue slumped 7.9 percent, compared with a 5.7 percent decline in the second quarter and a 7.1 percent contraction in the first three months of the year.
Telefonica wasn’t the only European phone company to disappoint this earnings season. Telecom Italia SpA said last week that nine-month domestic sales fell 7.4 percent to 15 billion euros and that Italian mobile revenue dropped more than 10 percent. Telefonica indirectly owns a stake in Italy’s biggest phone company.
Latin America
Telefonica’s revenue in Latin America climbed 12 percent to 6.37 billion euros, while European sales outside Spain grew 14 percent to 3.96 billion euros. Sales in Latin America were predicted at 6.4 billion euros while European sales excluding Spain were seen at 3.88 billion euros, according to a survey of six analysts. Overall Spanish sales were in line with estimates.
The Vivo deal added a 3.5 billion-euro gain under new accounting rules, based on International Financial Reporting Standards. Telefonica’s previously held stake in the venture was revalued under the rules based on the price it paid to buy out Portugal Telecom.
Telefonica today reiterated its short- and mid-term goals, including its dividend commitments. Telefonica has pledged to pay a 2012 dividend of at least 1.75 euros per share.
--Editors: Vidya Root, Robert Valpuesta
To contact the reporters on this story: Paul Tobin in Madrid at ptobin@bloomberg.net;
To contact the editors responsible for this story: Tim Quinson at tquinson@bloomberg.net
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(Adds closing share price in fifth paragraph.)
Nov. 11 (Bloomberg) -- Telefonica SA’s record quarterly profit fell short of analyst estimates after an accelerated decline in domestic wireless revenue hurt Europe’s second- largest phone company.
Shares slid after the Spanish company’s third-quarter net income climbed to 5.06 billion euros ($6.95 billion) from 1.88 billion euros a year earlier, boosted by a gain related to its 7.5 billion-euro purchase of control of Brazil’s Vivo Participacoes SA. The profit was less than the average analyst estimate of 5.45 billion euros from a Bloomberg survey.
Chairman Cesar Alierta sought to reduce Telefonica’s dependence on its home country, raising his bid three times to convince Portugal Telecom SGPS SA to sell its part of their 50-50 venture that controlled Vivo, Brazil’s largest wireless operator. Spain’s economy stalled in the quarter as the deepest austerity measures in three decades undermined its recovery from an almost two-year recession, a government report showed today.
“Spanish trends have worsened, which is clearly a negative,” said Roger Appleyard, head of global credit research at RBC Capital Markets in London. “The picture in Brazil is a lot more encouraging.”
Telefonica shares declined 1.6 percent to 18 euros in Madrid. The stock has dropped 7.8 percent this year, compared with a 1.4 percent increase for the Bloomberg Europe Telecommunication Services Index.
Operating Income
In the latest quarter, sales climbed to 15.23 billion euros from 14.2 billion euros and operating income before depreciation and amortization jumped to 9.46 billion euros from 5.72 billion euros. Operating income by that measure was expected to reach 9.5 billion euros on sales of 15.1 billion euros, according to the survey.
Spanish sales fell 3.6 percent to 4.72 billion euros. Domestic wireless service revenue slumped 7.9 percent, compared with a 5.7 percent decline in the second quarter and a 7.1 percent contraction in the first three months of the year.
Telefonica wasn’t the only European phone company to disappoint this earnings season. Telecom Italia SpA said last week that nine-month domestic sales fell 7.4 percent to 15 billion euros and that Italian mobile revenue dropped more than 10 percent. Telefonica indirectly owns a stake in Italy’s biggest phone company.
Latin America
Telefonica’s revenue in Latin America climbed 12 percent to 6.37 billion euros, while European sales outside Spain grew 14 percent to 3.96 billion euros. Sales in Latin America were predicted at 6.4 billion euros while European sales excluding Spain were seen at 3.88 billion euros, according to a survey of six analysts. Overall Spanish sales were in line with estimates.
The Vivo deal added a 3.5 billion-euro gain under new accounting rules, based on International Financial Reporting Standards. Telefonica’s previously held stake in the venture was revalued under the rules based on the price it paid to buy out Portugal Telecom.
Telefonica today reiterated its short- and mid-term goals, including its dividend commitments. Telefonica has pledged to pay a 2012 dividend of at least 1.75 euros per share.
--Editors: Vidya Root, Robert Valpuesta
To contact the reporters on this story: Paul Tobin in Madrid at ptobin@bloomberg.net;
To contact the editors responsible for this story: Tim Quinson at tquinson@bloomberg.net
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