Telefonica Brasil Q1 Earnings Drop - Analyst Blog

Brazilian telecom carrier, Telefonica Brasil SA VIV reported first-quarter 2014 net income of R$660.8 million ($279.6 million), down 18.4% year over year. However, net operating revenue rose 0.7% year over year to R$8,611.9 million ($3,644.5 million).

Recurrent EBITDA dropped 9.7% year over year to R$2,562.8 million ($1,084.5 million) in the first quarter, while EBITDA margin of 29.8% was down 340 basis points (bps).

Recurrent operating expenses in the first quarter increased 5.8% year over year to R$6,049.1 million ($2,560.0 million).

Revenue Segment-wise

Mobile Business' total revenue climbed 2.2% year over year to R$5,758.7 million ($2,437.1 million) in the reported quarter, primarily driven by Data, Internet, VAS and other services.

Average revenue per user (ARPU) grew 0.7% to R$23.3 ($9.86), driven by a 17.5% rise in Data ARPU. Customer churn was flat year over year at 3.4% in the quarter.

As of Mar 31, 2014, the total subscriber base was 78.465 million (up 3.3% year over year). Post-paid subscribers increased 27.6% year over year to 24.912 million, while the prepaid customer count decreased 5.2% year over year to 53.553 million.

Fixed Line Business' total revenue fell 2.3% year over year to R$2,853.2 million ($1,207.5 million). Pay-TV revenues jumped 14.0% while fixed voice and access revenues dropped 7.3% year over year.

At the end of the first quarter, total fixed access lines reached 15.391 million, reflecting a 3.5% year-over-year increase. Fixed Broadband customers were 3.918 million compared with 3.753 million a year ago. The Pay-TV subscriber base grew 14.7% year over year to 645,000 customers, while fixed voice subscribers totaled 10.828 million, up 2.6% year over year.

Liquidity

Telefonica Brasil – a subsidiary of Telefonica SA TEF – exited the quarter with cash and cash equivalents of R$ 4,544.5 million ($1,923.2 million) as compared to R$6,543.9 ($3,039.6 million) at the end of 2013. Total debt was R$ 8,562.6 million ($3623.7 million) versus R$8,753.6 million ($4,066 million) at the end of 2013 and net debt-to-EBITDA ratio was 0.35 times. The company ended the first quarter with 1.4 million 4G customers.

Total capital expenditure during the quarter was R$1,001.0 million ($423.6 million), up 41.4% year over year.

Dividend

The company declared a dividend of R$0.110683 (4.68 cents) per common share which will be paid on May 27, 2014.

Our Take

We believe Telefonica Brasil's bundled offering along with its quality service is strengthening its competitive position, thus allowing it to expand its market share. Focusing on higher growth areas like data transmission and video services are expected to deliver decent growth in the future.

Telefonica Brasil currently holds a Zacks Rank #2 (Buy). Other stocks worth considering in this sector include Level 3 Communications, Inc. LVLT and Nippon Telegraph and Telephone Corporation NTT. Level 3 carries a Zacks Rank #1 (Strong Buy) while NTT holds the same rank as VIV.