Vodafone Misses Quarterly Revenue
Vodafone (NASDAQ: VOD) announced on Thursday that it had missed quarterly revenue forecasts as a result of a tough quarter in Spain and Italy that overshadowed strong performances in northern Europe, as well as emerging markets.
According to Reuters, British-based VOD is the latest in a long line of companies warning that austerity-hit consumers and businesses in southern Europe are cutting back on spending, and it would seem that the cell phones are one of the first things to be put down.
Despite the results, VOD's outlook for the year remains unchanged and it said that group organic service revenue from the provision of ongoing services to customers was up 0.9 percent, compared with the analyst forecast of 1.1 percent.
Vodafone is the first of the big European operators to report its results, and it confirmed that revenues had been hit by weak consumer confidence in Spain, Italy and Britain. Another factor that came up is that corporate clients had been forced to cut back on travelling over the last three months of 2011 due to the floundering economy.
Liberum analyst Mark James told Reuters that, “Our view remains that Vodafone is the best of a bad bunch. Better value, better run and more shareholder friendly than most of the European telco incumbents where we remain negative. We would expect Southern European telcos to trade weaker today. But there is little here to make Vodafone trade much better.”
At 4:10 a.m. EST, VOD shares were down 0.5 percent at 172.7 pence.
The ongoing difficulties in Europe really are the bane to VOD's existence right now though. It generates approximately 70 percent of its business in Europe and, while Germany and the UK are performing more-than-adequately, Spain and Italy continue to drag it down.
One area that has seen a minor boom is revenue from data downloads, thanks to the worldwide increased use of smartphones like the iPhone. Consumers cannot get enough of those sort of toys, yet that still failed to offset losses in voice revenue. In other words, providers still need people to use their phone as a phone.
VOD added more than 10,000 new customers in the third quarter. An impressive 90 percent of those were from outside of Europe, with South Africa, India and Egypt leading the way for the emerging markets.
VOD CEO Vittorio Colao confirmed that the company's forecasts for 2012 remain as previously announced, with adjusted operating earnings between 11.4 billion and 11.8 billion pounds. Colao also said that annual earnings will decline more slowly than they had done in FY2011.
On Wednesday, VOD had been forced to abandon plans to merge with Greek provider Wind Hellas, after EU competition authorities made it clear that they opposed the deal. Discussions are ongoing, but for now that deal looks, if not dead, then comatose.
In its report on Thursday, J.P. Morgan said that trends are weaker than expected in Australia, the Netherlands and the UK, and this is partially offset by Vodacom. Morgan Stanley continues to rate VOD Overweight for cash flow potential, despite its revenue problems during the last quarter. Citi says that VOD's light revenue growth and conservative commentary around challenging market conditions comes as no surprise, while Barclays said that VOD is outperforming peers in its key European markets. Deutsche Bank said that the results were overall disappointing, “but a small miss on organic growth and totals were in line”.
The eurozone crisis was always going to make life difficult for a company with 90 percent of its business in Europe. However, VOD has perhaps performed admirably by stretching out into the emerging markets. That has seen it get through some difficult months, and will probably see it though more in the future.
