Telefonica SA, Europes second-largest telecommunications company behind Vodafone Plc and biggest investor in Latin American telecommunications, reported worse-than-expected net profit in the first quarter, dragged by a continuing decline in demand in Spain and negative currency effects in its Latin American markets.
The Madrid-based carrier reported today that its net profit for the three months through March 31st fell by 23% to 692 million euros from 902 million during the comparable period a year earlier. This was on the back of a 14% decline in revenue, which slid to 12.2 billion euros from 14.1 billion a year ago and missed analysts forecasts. Operating income before depreciation and amortization (OIBDA) stood at 3.93 billion euros, underperforming projections for 3.97 billion euros.
The downbeat results were based on slowing demand on the domestic market, while the devaluation of currencies in Latin America offset a rise in the companys local customer base.
Telefonica reported that revenue in Spain slid by 8.2%, while also marking an 8.8% drop in Germany. Better performance was achieved in the U.K., where revenue slid 0.3% but customer headcount was stable. In order to overcome the softening demand in its domestic market and respond to the intensifying competition from Jazztel Plc and Vodafone Group Plc, the company is investing in the expansion of its fiber optics network and has almost doubled the number of customers using it to little over 700 000. Earlier this week it offered to acquire a controlling stake in Promotora de Informaciones SA’s pay-TV unit in a $1-billion deal, which is considered as a crucial move to lure new customers for its high-speed Internet services.
In Germany, Telefonicas local division, Telefonica Deutschland Holding AG, reported on Thursday OIBDA and revenue below analysts estimates. The unit is currently awaiting regulatory approval of a merger with Royal KPN NV’s E-Plus, which should come by June.
The companys Latin American business, which accounts for half of its revenue and two-thirds of its customer base (307 million), saw a decline in profits due to weakening local currencies, even though the carrier continued to add clients. Revenue in Brazil slid by 18%, adding to a 13% drop in the rest of the markets in the region. During the first three months, the Argentine peso plunged by 18% against the euro, while the Chilean peso saw a 4.2% decline.
Andres Bolumburu, an analyst at Banco de Sabadell SA in Madrid, commented, cited by Bloomberg: “While the story of the company remains intact, they will likely suffer from foreign-exchange rate effects in the current quarter as well. I was expecting a better performance of the fixed-line business in Spain, though mobile did a lot better.”
Telefonica SA fell by 3.41% to 11.63 euros per share in Madrid by 11:43 GMT, marking a one-year change of +4.77%. The carrier is valued at 54.79 billion euros. According to the Financial Times, the 31 analysts offering 12 month price targets for Telefonica SA have a median target of 12.00 euros, with a high estimate of 14.85 euros and a low estimate of 8.20 euros. The median estimate represents a -0.33% decrease from the previous close of 12.04 euros.
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