By Manuel Baigorri - Nov 11, 2011 8:36 PM GMT+0700
Nov. 11 (Bloomberg) -- Otto Waser, chief investment officer at R&A Research & Asset Management AG, talks about European corporate earnings, investment strategy and recommendation of Swatch Group AG, SAP AG, International Business Machines Corp., Apache Corp. and Telefonica SA. He speaks from Zurich with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)
Nov. 11 (Bloomberg) -- Charlotte Patrick, principal analyst at Gartner Inc.'s Carrier Strategy team, talks about the outlook for technology and telecommunication companies. She speaks with Caroline Hyde and Elliott Gotkine on Bloomberg Television's "Countdown." (Source: Bloomberg)
Telefonica SA (TEF), Europe’s largest phone company by market value, reported its first quarterly loss in nine years on costs to eliminate jobs and lower revenue from Spain as customers switched to cheaper rivals’ offers.
The third-quarter net loss was 429 million euros ($584 million), weighed down by 2.6 billion euros in job-cut expenses, Madrid-based Telefonica said today. Analysts had predicted a loss of 213 million euros, according to the average estimate of 11 analysts compiled by Bloomberg.
Chief Executive Officer Cesar Alierta is slashing the operator’s Spanish workforce, halting major mergers and acquisitions and cutting debt to revive investor confidence. Telefonica’s stock is down 18 percent this year, compared with a 10 percent decline in the Bloomberg Europe Telecommunications Index.
Telefonica’s sales in its home market slid 8.8 percent to 4.31 billion euros from a year earlier, while total sales climbed 3.7 percent to 15.79 billion euros.
The company has suffered “a slowdown in Spain, where prices are very high, it’s doing less well relative to peers in the U.K. and Germany than it has historically, and now there are fears about Latin America also slowing down and currencies going against them,” Robin Bienenstock, a London-based analyst at Sanford C. Bernstein Ltd said today in a Bloomberg television interview.
‘Growth Story Over’
Telefonica rose 0.7 percent to 13.95 euros at 2:32 p.m. in Madrid.
Alierta is counting on economic growth in Latin America, which accounts for 47 percent of sales, to win back investors discouraged by Spain’s unemployment rate, the highest in the euro zone. The Spanish economy stalled in the third quarter, with gross domestic product unchanged from the previous quarter, when it expanded 0.2 percent, undermining the country’s efforts to shield itself from the sovereign debt crisis.
Telefonica’s sales in Latin America climbed 18 percent to 7.4 billion euros. Operating income before depreciation and amortization dropped 59 percent to 2.58 billion euros as last year’s figures were boosted by a gain related to the company’s 7.5 billion-euro purchase of a controlling stake in Brazil’s Vivo Participacoes SA.
Sales in Brazil climbed 35 percent to 3.6 billion euros in the quarter, compared with a 40 percent increase in the second quarter. In Mexico, sales dropped 16 percent to 377 million euros from 450 million euros a year earlier.
Latin America
“Latin American numbers were worse than expected, especially in Mexico and Brazil,” said Francisco Salvador, a strategist at FGA/MG Valores in Madrid. “This is a tough year for Telefonica.”
In September, Alierta folded Telefonica’s domestic unit into its European division and shuffled regional chiefs, putting Jose Maria Alvarez-Pallete in charge of Europe and giving Santiago Fernandez Valbuena responsibility for Latin America. Telefonica also created a digital division in London run by Matthew Key.
Telefonica’s mobile-phone market share in Spain slipped to 40.47 percent in September from 40.65 percent in August, according to the country’s telecommunications market regulator. France Telecom SA (FTE)’s Orange unit and TeliaSonera AB (TLSN)’s Yoigo division gained market share. Fixed-line rival Jazztel last month reported net income that almost doubled from a year earlier.
The situation of the business in Spain remains “complicated,” Alvarez-Pallete told reporters Nov. 3 in Madrid, as the company slashed broadband rates.
Targets
Telefonica today reiterated its full-year financial and dividend targets. The company said in April that it plans to pay a 2012 dividend of at least 1.75 euros per share.
Alierta told investors in April that revenue will grow 1 percent to 4 percent annually through 2013 from an adjusted base of 63.1 billion euros in 2010. Operating margin before depreciation and amortization will be in the “upper 30’s” in percentage terms, falling from 38 percent in 2010.
Telefonica last reported a quarterly loss for the final three months of 2002.
To contact the reporters on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net;
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
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