Telefonica Q1 Earnings and Revs Fall Y/Y - Analyst Blog


Spanish telecom giant Telefonica S.A. ( TEF ) reported first-quarter 2014 adjusted earnings of 15 Euro cents per share (21 cents per ADS) that deteriorated from 20 Euro cents (26 cents per ADS) earned in the comparable quarter last year.

The company recorded revenues of €12,232 million ($16,762 million) in the first quarter that dropped 13.5% year over year. Weak performance across most of the markets induced the decline in revenues.

In the first quarter, adjusted operating income before depreciation and amortization (OIBDA) declined 14.0% to €3,929 million ($5,384 million), resulting in adjusted OIBDA margin of 32.1%, down 20 basis points year over year.

Segment Results

Telefonica Latin America: In the first quarter, revenues in Brazil declined 18.3% to €2,666 million ($3,653.4 miliion), while in the Hispanoamerican market, revenues tumbled 12.9% to €3,436 million ($4708.6 million). OIBDA in the two above mentioned markets declined 21.3% and 14.3% respectively.

Telefonica Europe : In Spain, wireless revenues fell 8.2% to €2,992 million ($4,100 million) resulting from decline in both wireless and wireline revenues. Wireless revenues were €1,155 million ($1,528.8 million), down 10.2% over the year-earlier period, while wireline business deteriorated 6.4% to €2,079.0 million ($2,220 million). OIBDA in Spain declined €1,402 million ($1,921.3 million) in the quarter.

Revenues from Telefonica U.K. climbed 2.4% to €1,644 million ($2,252.9 million), while in Germany, the same plunged 8.8% to €1,122 million ($1,537.6 million). In Ireland as well, the top line reduced 4.4% to €130 million ($178.0 million). OIBDA performance in UK and Ireland improved 19.4% and 3.4% respectively while in Germany, it deteriorated 14.6% during the first quarter.

Subscriber Statistics

At the end of the first quarter of 2014, total customer access reached approximately 313.1 million, down 1.0% year over year due to the sale of the Czech Republic business and the residential business in U.K.

On an annualized basis, mobile access rose 3.0% to 247.5 million customers. Total Internet and data access declined to 18.1 million from 19.4 million reported in the previous year quarter. Pay TV access totaled 3.57 million, down 8.0% year over year. Fixed telephony access fell 5.5% to 37.59 million subscribers at the end of the reported quarter.

Liquidity and Capital Expenditure (Capex)

Telefonica exited first-quarter 2014 with net debt of about €42.72 billion ($58.5 billion), down from €45.38 billion ($62.5 billion) recorded at the end of 2013. The leverage ratio (net debt-to-EBITDA) was 2.30 times. The company also declared that if the sale of the Ireland operations is included, net debt will be reduced to €41.94 billion ($57.47 billion) while leverage ratio will stand at 2.27. Telefonica ended the quarter with cash and cash equivalent of €7,904 million ($10,870 million) as compared with €9,977 million ($13,721 million) at the end of Dec 31, 2013.

Capex declined 19.9% year over year to €1.55 billion ($2.13 billion) in the reported period and includes €137 million ($187.7 million) incurred in the acquisition of Spectrum in Colombia and Central America. Operating cash flow (OIBDA-Capex) was €2.37 ($3.25) billion, down 9.6% year over year.

Future Outlook

In 2014, Telefonica expects revenues to decline a mere 0.1% while OIBDA margin will likely see an erosion of 0.4%. Additionally, the company expects net financial debt of €42.72 billion ($58.54 billion) and capex/sales ratio of 11.5%.

Our Take

Telefonica continues to remain under pressure due to slow European recovery, weak domestic operations, a slowdown in Brazil, adverse regulations, highly leveraged balance sheet and rising competition from peers like Orange ( ORAN ), Vodafone Group plc ( VOD ) and America Movil S.A.B. de C.V. ( AMX ).

Telefonica currently carries a Zacks Rank #4 (Sell).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AMX , ORAN , TEF , VOD

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