Monday, November 14, 2011

Telefónica plunges to quarterly loss, dragged down by Spain

Telefónica blamed fierce competition in its domestic Spanish market for dragging the company into its first quarterly loss in nine years. The operator the third-quarter loss of €429 million was caused by the decision earlier this year to cut 6,500 workers within its Spanish unit at a cost of €2.7 billion, and lower revenue from its domestic operations as customers switched to rivals' cheaper offers.
While a loss was expected, forecasters had only predicted a loss of €213 million, according to the average estimate of 11 analysts compiled by Bloomberg.
"Expectations were low ahead of earnings, but across the board [core earnings] weakness is an incremental negative in our view," said Goldman Sachs' analyst Tim Boddy in a note to clients, according to Reuters.
In a statement, Telefónica blamed a tough regulatory environment and difficult business conditions amid sluggish economic growth for a weak performance, but forecast that the restructuring announced in September would positively impact the company's efficiency. Telefónica confirmed that sales in its home market slid 8.8 per cent in its third quarter.
What also caused consternation among financial analysts was the company announcing a dividend payment of €1.75 per share for next year, and to keep this amount as a minimum from then on. "It's shocking they haven't lowered their guidance," a London-based analyst (who requested anonymity) told Reuters.
Giovanni Montalti, an industry commentator with Credit Agricole Cheuvreux in London, heaped further criticism on Telefónica, telling Bloomberg: "Spain has deteriorated even further from previous quarters and we can expect weakness to persist. More austerity measures will also hit consumption. Telefónica should rethink its dividend policy and capital allocation."
Any relief for the company was provided by its Latin American operations where sales climbed 18 per cent to €7.4 billion. The region now accounts for 46 per cent of its total revenues, up by 5 per cent from September of last year.

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