Telefónica earnings hit by lower Latin American sales

Telefónica's net profit fell by almost a quarter in the opening three months of 2014, as a drop in performance by the company's Latin American operations added to continued tough conditions in its core European markets.

The Spanish incumbent's net income fell 23.2 per cent year-on-year to €692 million ($955 million) in the first quarter of 2014, after revenues fell 13.5 per cent to €12.2 billion. First quarter income is also down sequentially--dropping from €1.4 billion in the final three months of 2013.

Operating income before depreciation and amortisation (OIBDA) fell in all Telefónica's markets bar the UK during the quarter, resulting in a 14 per cent annual decline to €3.93 billion. The figure falls short of an average of €3.97 billion predicted by analysts polled by Bloomberg.

Telefónica said its businesses in Latin America were impacted by a mix of regulation and currency exchange fluctuations. The region currently generates around half of Telefónica's total revenues, and has driven the company's performance in recent years amid falling sales in its core European markets.

Despite the declines César Alierta, Telefónica's executive chairman, said the first quarter performance "was in line with the targets set for the year," and showed "visible progress in the execution of the strategy announced for 2014", which centres on differentiating the company's products and services "through a non-replicable infrastructure."

Alierta also noted the company posted its "strongest first quarter cash flow generation in the last three years" in the opening three months of 2014, and continued to cut its net debt "bringing total reduction to around €16 billion over the last 7 quarters."

Analysts with Oddo Securities told Reuters that Telefónica is being hit by slower than expected stabilisation in its Spanish and Brazilian operations, and said the company's performance in Germany and Latin America was "uninspiring".

Telefónica's first-quarter performance is typical of the results recorded by Europe's largest telecom operators.

Deutsche Telekom reported a 23.5 per cent drop in net income in the opening quarter when excluding income from the partial sale of its Scout24 group, while Orange last week said earnings before interest, depreciation and amortisation (EBITDA) fell 3.8 per cent year-on-year.

For more:
- see Telefónica's first quarter 2014 results [PDF]
- view Telefónica's results statement [PDF]
- see the operator's first quarter 2013 results [PDF]
- read this Bloomberg article
- see this Reuters report
- view Deutsche Telekom's first quarter results

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