Brazilian telecom carrier
) reported third-quarter 2012 net income of R$935.8 million
($456.6 million), down 29.8% year over year. Earnings per ADS
came in at 41 cents, considerably lagging the Zacks Consensus
Estimate of 53 cents.
Revenue rose 2.1% year over year to R$8.46 billion ($4.13
billion), and was inline with the Zacks Consensus Estimate.
Consolidated EBITDA rose 3.1% year over year to R$2.9 billion
($1.4 billion), with EBITDA margin increasing 30 basis points
(bps) to 34.4%. Operating expenses dropped 0.9% year over year to
R$5.56 billion ($2.71 billion).
revenue climbed 8.5% year over year to R$5.34 billion ($2.61
billion), driven primarily by data and VAS, and access and usage
revenues. Telefonica Brasil added 0.93 million customers in the
quarter, thus taking its total subscriber base to 76.81 million
(up 14.6% year over year). Post-paid and prepaid subscribers grew
16.9% and 13.9% year over year to 17.95 million and 58.85
Average revenue per user (ARPU) fell 7.1% to R$22.2 ($10.8) as
lower voice ARPU fully mitigated the growth in data ARPU. As a
result of higher termination of 1.6 million inactive prepaid
subscribers, customer churn upped 0.6% year over year to
revenue fell 7.3% year over year to R$3.12 billion ($1.52
billion). Pay TV performed the worst with revenue decline of
18.6% followed by a 13.4% decline of fixed voice and access.
However, other services, interconnection and data transmission
revenue increased 17.2%, 4.7% and 1.2% respectively.
Total fixed access lines reached 15.08 million at the end of
the reported quarter, reflecting a 1.6% year-over-year decrease.
Telefonica Brasil added 37,000 fixed broadband service customers,
bringing the total subscriber base to roughly 3.75 million (up
5.7% year over year) during the quarter. The Pay TV subscriber
base dropped 10.6% year over year to 619,000 customers. Fixed
voice lost 57,000 customers and the subscriber base stood at
10.71 million at the end of the third quarter.
Telefonica Brasil - a subsidiary of
), exited the third quarter with cash and cash equivalents of
R$6.74 billion compared with R$3.13 billion in the year-ago
quarter. Net debt decreased to R$1.08 billion from R$1.92 billion
in the year-ago quarter. Net debt-to-EBITDA ratio improved to
0.09 times from 0.16 times in the year-ago quarter.
Capital expenditure decreased 21.4% year over year to R$963.6
million ($470.1 million) in the reported quarter.
Despite the expansion of video, broadband Internet and Pay TV
services, we remain skeptical about the company's ability to
regain lost profitability in the fixed-line segment. Tariff cuts,
intense inflationary pressure, stiff competition from rivals like
S.A.B. de C.V.
Telecom Italia S.P.A.
), and excessive government intervention would put added pressure
on the company. All these factors might restrict the potential
synergies derived from the mobile business apart from restraining
the top and bottom-line growth.
We are currently maintaining our long-term Underperform
recommendation on the stock. For the short term (1-3 months),
Telefonica Brasil holds a Zacks # 3 (Hold) Rank.
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