Brazilian telecom carrier Telefonica Brasil SA VIV – a subsidiary of Telefonica SA TEF – reported fourth-quarter 2014 earnings per share of 39 cents, higher than the Zacks Consensus Estimate of 36 cents. However, the company’s earnings declined 17% year over year.
Net operating revenue rose 1.8% year over year to R$9,047.6 million ($3,145 million). However, the figure missed the Zacks Consensus Estimate of $3,835 million.
Recurrent EBITDA improved 6.6% year over year to R$2,960.8 million ($1,162.4 million) in the fourth quarter, while EBITDA margin of 32.7% was up 150 basis points.
Also, recurrent operating expenses declined 0.4% year over year to R$6,298.8 million ($2,473 million).
Segment-wise Results
Total revenue at the Mobile Business climbed 4.7% year over year to R$6,219 million ($2,441.6 million) in the reported quarter, primarily driven by strength in Data, Internet, VAS and other services.
As of Dec 31, 2014, the total subscriber base touched 79.9 million (up 3.5% year over year). Post-paid subscribers increased 23.7% year over year to 28.4 million, while the prepaid customer count fell 3.7% year over year to 51.6 million.
Fixed Line Business’ total revenue declined 3.2% year over year to R$2,828.6 million ($1,110.5 million). Pay-TV revenues jumped 6.2% while fixed voice and access revenues gained 1.5% year over year.
At the end of the fourth quarter, total fixed access lines reached 15.4 million, reflecting a 1.1% year-over-year decrease. Fixed Broadband customers totaled 3.9 million compared with 3.9 million a year ago. The Pay-TV subscriber base grew 22.3% year over year to 771,000 customers, while fixed voice subscribers totaled 10.7 million, down 0.1% year over year.
ARPU
ARPU fell 0.8% to R$24.6 ($9.65), primarily owing to a 9.9% decline in Voice ARPU. On the positive side, Data ARPU improved 18.3%.
Liquidity
Telefonica Brasil exited the quarter with cash and cash equivalents of R$4,692.7 million ($1,842.4 million) as compared with R$6,543.9 ($2,569.1 million) at the end of fourth-quarter 2013. Total debt stood at R$7,799.3 million ($3,026 million) versus R$8,753.6 million ($3,436.7 million) at the end of fourth-quarter 2013.
Our Take
We believe Telefonica Brasil’s bundled offerings coupled with quality service are consistently strengthening its competitive position, in turn, allowing it to expand its market share. However, the poor performance of the company’s fixed voice and access business remains a concern. Further, weak economic growth, competitive pressure, increased wireless penetration, a weak Brazilian currency and regulatory pressures are the major hurdles facing the company.
Zacks Rank
Telefonica Brasil currently retains a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include China Unicom (Hong Kong) Limited CHU and Chunghwa Telecom Co., Ltd. CHT. Both the stocks sport a Zacks Rank #1 (Strong Buy).
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