Telefónica books record earnings on Vivo stake buy

Telefónica booked bumper profits in the third quarter of the year due to a revaluation of its stake in its Brazilian unit Vivo, but the Spanish telecoms giant's overall earnings disappointed due to weakness in its domestic market.

Telefónica said Thursday its net income in the period July-September jumped 168.7 percent to a record 5.059 billion euros after buying its erstwhile partner Portugal Telecom's stake in Vivo for 7.5 billion euros. Telefónica had to raise its bid three times to persuade PT to exit Vivo, and analysts believe it paid over the odds to strengthen its position in the rapidly growing Brazilian market.

Accounting regulations pushed up the value of Vivo on Telefónica's books and swelled third-quarter earnings by 3.576 billion euros.

Recurring earnings, however, were undermined by its local unit where sales fell 3.6 percent, with revenues from its wireless operations down 7.9 percent. The Spanish economy stalled in the third quarter after barely emerging from almost two years of deep recession at the start of the year.

Telefónica's downturn in Spain was partly offset by an improved performance by its Latin American business led by Brazil. Revenues in the region climbed 10.7 percent. Latin America now accounts for over 40 percent of Telefónica's sales, compared with just over 30 percent in the case of Spain.

"Spanish trends have worsened, which is clearly a negative," Bloomberg quoted Roger Appleyard, the head of global credit research at RBC Capital Markets in London, as saying. "The picture in Brazil is a lot more encouraging."

In the first nine months, net income rose 65.6 percent to 8.835 billion euros, a figure below analyst forecasts. Sales in the period climbed 6.0 percent to 44.28 billion euros. The Vivo deal also pushed up Telefónica's operating profit before amortizations (OIBDA), which climbed 22.5 percent in the nine months to 20.368 billion euros. However, factoring out the impact of the increase in Telefónica's Vivo stake, OIBDA slid 2.3 percent due to a lower contribution from Spain and restructuring costs in Germany.