Spanish telecom giant Telefonica S.A. (TEF) reported third-quarter 2014 earnings per share of 25 cents, down 21.9% year over year.
The company recorded revenues of €13,021 million ($17,261.9 million), down 7.4% on a reported basis but up 2.8% on an organic basis.
Consolidated operating expenses declined 4.8% on a reported basis to €9,058 million ($12,008 million) owing to higher personnel expenses but jumped 5% on an organic basis.
Operating income before depreciation and amortization (OIBDA) came in at €4,269 million ($5,659.4 million), down 8.7% on a reported basis but up 0.8% on an organic basis. This resulted in adjusted OIBDA (operating income before depreciation and amortization) margin of 32.8%, down 50 basis points year over year.
Segment Results
Telefonica Latin America: Revenues in Brazil increased 1.8% on a reported basis and 1.1% on an organic basis to €2,896 million ($3,839.2 million), while in the Hispano-American market, revenues tumbled 9% on a reported basis but increased 14.1% on an organic basis to €3,845 million ($5,097.3 million). On a year-over-year basis, OIBDA in Brazil and the Hispano-American market increased to 30.4% from 28.9% and to 33.8% from 33.4%, respectively.
Telefonica Europe: In Spain, revenues fell 6.6% to €2,993 million ($3,967.8 million) due to decline in both wireless and wireline revenues. Wireless revenues grossed €1,118 million ($1,482.1 million), down 11.4% over the year-earlier period, while wireline business deteriorated 2.5% to €2,134 million ($2,829 million). OIBDA in Spain declined 14.4% to €1,376 million ($1,824.2 million) during the third quarter.
Revenues from Telefonica U.K. climbed 5.1% on a reported basis but declined 2.3% on an organic basis to €1,805 million ($1,803.7 million), while in Deutschland, the same fell 0.5% to €1,219 million ($1,616 million).
Subscriber Statistics
At the end of third-quarter 2014, total customer access reached approximately 316.1 million, down 1.3% year over year primarily driven by increase in growth of valuable segments like mobile contract, fibre and pay-TV customers.
On a year-over-year basis, mobile access tolled 249.4 million customers. Total Internet and data access declined 4.9% from 18.2 million reported in the comparable period last year. Pay-TV access totaled 4.6 million, up 35.1% year over year. Fixed retail broad band access decreased 4.0% to 17.7 million subscribers at the end of the reported period.
Liquidity
Telefonica exited third-quarter 2014 with net debt of about €41,200 million ($54,618.8 million), down from €37,019 million ($49,076.1 million) recorded at the end of third-quarter 2013. Telefonica ended the quarter under review with cash and cash equivalent of €11,246 million ($14,908.8 million) as compared with €9,977 million ($13,721 million) at the end of Dec 31, 2013. Net cash provided by operating activities declined 14.8% to €8,821 million ($11,694 million).
2014 Outlook
In 2014, Telefonica expects revenue growth while OIBDA margin will stabilize with an expected annualized erosion of 1%. Additionally, the company expects net financial debt of less than €43 billion.
Our Take
The company is expected to benefit from strategic measures undertaken in the European markets, including expansion of broadband and data services, pricing revision, network enhancement and collaboration with other players. However, the company continues to remain under pressure due to slow recovery in the European economy, weak domestic operations, highly leveraged balance sheet and growing 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 #3 (Hold).
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