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Telefonica's 9M profit misses forecasts

Source: Reuters - Thu 11th Nov 2010

Spanish telecoms group Telefonica reported a lower than expected net profit on Thursday, with an exceptional gain from the revaluation of Brazilian unit Vivo helping to mask a lacklustre performance in Spain.

Shares in the company were down 1.7 percent at 17.99 euros by 0823 GMT, when the STOXX 600 European telecoms sector index was down 0.18 percent.

Net profit for the first nine months of the year rose 65.6 percent to 8.84 billion euros, short of the 72 percent rise expected by analysts, on revenue up 6 percent at 44.28 billion euros.

The performance of the euro zone's largest telecom company was skewed by its previously announced decision to revalue Vivo following its purchase of Portugal Telecom' stake in Brazil's biggest cellphone operator, adding 3.5 billion euros to group net profit.

Revenues in Latin America, which now account for over 40 percent of the group's total, rose 10.7 percent in the first nine months of the year, or 6.9 percent in organic terms, while European revenue outside Spain was up 11.8 percent.

In contrast revenue in Telefonica's closely-watched Spanish business, which still accounts for 30 percent of the group, fell 3.6 percent in the third quarter after a 3.2 percent drop in the second, hit by a tough economy with nearly 20 percent unemployment and fierce competition.

The previous quarter marked what some analysts had hoped was the start of a recovery.

"Vodafone gave extremely poor results from Spain earlier this week. These are not as bad as that and not as bad as last year but still, it's very slow to recover" said Kevin Yates, analyst at RBS in London.

Vodafone posted an 8 pct fall in revenue in Spain in the first half, and a 16 pct fall in EBITDA, citing a challenging economic and competitive environment.

According to a Reuters poll of 11 analysts, net profit for the first nine months of the year was expected to have risen 72.1 percent to 9.19 billion euros ($12.62 billion), on a 5.8 percent rise in revenue.

Telefonica, which will hold a conference call at 1500 GMT, also reiterated its dividend and earnings targets until 2012.

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