Spanish telecom giant
) reported adjusted earnings of 38 cents per ADS (€0.29 per share)
in the first quarter of 2012 that missed the Zacks Consensus
Estimate of 43 cents. Earnings per share dropped 25.7% from the
Adjusted net income decreased 26.6% year over year to €1.28
billion ($1.68 billion).
Consolidated revenue inched up 0.5% year over year to €15.51
billion ($20.33 billion) in the reported quarter beating the Zacks
Consensus Estimate of $20.21 billion. The improved performance was
credited to solid growth in Latin America, which partially offset
weaker operations in Europe.
Adjusted operating income before depreciation and amortization
(OIBDA) slid 7.4% to €5.08 billion ($6.66 billion), resulting in
OIBDA margin of 32.8%, down from 35.5% in the year-ago quarter.
Effective this year, Telefonica has restructured its operations
into two regions -- Europe and Latin America -- and two global
business units -- Telefónica Digital and Telefónica Global
Resources. Operations in Spain will be included in Europe.
Telefonica Latin America
Latin Americacontinued to grow at a faster pace and remained one of
the best performing regions. Revenues increased 8.3% year over year
to €7.52 million ($9.86 million), driven largely by Brazil
(accounting for 48% of the revenues in Latin America and
representing a growth of 4.2%), followed by Venezuela (23.5%),
Argentina (18.6%), Central America (17.1%), Ecuador (16.5%),
Columbia (7.0%), Peru (5.8%), Chile (5.7%) and Uruguay (5.3%).
However, revenue from the key Mexico market registered a
considerable decline of 3.4% due to reduced MTRs.
Revenues in Brazil (the largest market) increased 4.2% year over
year to €3.6 billion ($4.7 million) backed by strong mobile
business. Telefonica's Brazilian wireless business revenue
increased 10.2% year over year to €2.21 billion ($2.89 billion)
while Wireline revenues fell 4.1% year over year to €1.39 billion
Revenues from Europe slid 6.6% year over year to €7.55 billion
($9.9 billion) mainly due to lower MTRs and economic headwinds. The
largest decline came from the operator's Spanish revenues - Espana
- that slipped 10.7% year over year to €3.90 billion ($5.11
In Espana, wireless revenue fell 13.7% to €1.7 billion ($2.23
billion) resulting from a reduction in mobile termination rates
(MTRs). This was partially offset by strong mobile data revenues
and improved handset sales. Wireline revenues also dropped 6.9%
year over year to €2.49 billion ($3.27 billion) due to lower voice
and access, and Internet broadband revenues partially offset by
higher data and IT revenues.
Revenues from the UK, Ireland, and Czech Republic and Slovakia
declined 6%, 17.0% and 3.5% year over year to €1.72 billion ($2.25
billion), €155 million ($203 million) and €496 million ($650
million), respectively in the reported quarter. On the other hand,
revenues from Germany showed a 2.5% increase to reach €1.26 billion
Other companies (ATENTO):
ATENTO revenue increased 8.3% to €484 million ($634 million) from
the year-ago quarter.
At the end of the first quarter, total customer access reached
approximately 309.4 million, up 6.5% year over year, driven by a
10.8% year-over-year growth in Latin America.
On an annualized basis, mobile access rose 8.1% to 241.1 million
customers driven by an outstanding 55% increase in mobile broadband
access to 41 million. Total Internet and data access grew 2.7% to
19.28 million. Pay TV access reached 3.32 million, up 16% year over
year. Fixed telephony access dropped 1.6% to 40.28 million
subscribers in the reported quarter.
Liquidity and Capital Expenditure (CapEx)
Telefonica exited the first quarter with net debt of €57.13
billion, up from €56.3 billion at the end of 2011. The leverage
ratio (net debt-to-EBITDA) improved to 2.55 times compared with
2.63 times as of December 2011.
CapEx grew 10.3% year over year to €1.71 billion in the reported
quarter. Operating cash flow (OIBDA-CapEx) deteriorated to €3.37
billion from €4.02 billion in the year-ago quarter.
For 2012, Telefonica expects revenue to grow at least 1% year
over year with lower EBITDA margin decline. Additionally, the
company expects leverage ratio (net debt-to-EBITDA) to be
equivalent to 2.35 times.
We are impressed with the company's efforts to improve
efficiency, expand its broadband and data services through Global
Resources and capture savings from restructuring plans across
various countries. These increased efforts would lead to strong
commercial activity, the main goal of the company, and would
translate into strong revenue and profitability, thereby increasing
However, these initiatives will increase commercial expenses,
which will weigh on the short-term margins. Further,
Telefonicaremains challenged by a weak domestic economy, the
slowdown in Brazil, the ongoing reduction in mobile termination
rates, a highly leveraged balance sheet and growing competition
France Telecom S.A.
Vodafone Group Plc
China Mobile Ltd.
S.A.B. de C.V.
We are maintaining our long-term Neutral recommendation on
Telefonica. For the short term (1-3 months), the stock also retains
a Zacks # 4 (Sell) Rank.
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