America Movil (AMX), the largest telecom carrier in Latin America has reported third quarter earnings per ADR of 39 cents below the Zacks Consensus Estimate of 47 cents and down 14.6% from 46 cents in the year-ago quarter.
After producing sequential gains in the first half of the year, earnings for the quarter were primarily affected by lower interconnection charges translation. Net profit plunged 21.2% year over year to MXN$18.6 billion ($1.5 billion).
Total revenue was approximately MXN$167.3 billion ($13.7 billion), up 7.9% year over year but below the Zacks Consensus Estimate of $13.8 billion. The top-line growth was mainly fueled by an increase in wireless subscribers and higher revenues from wireless data and Pay TV services.
Segment wise, Services revenue was MXN$152.3 billion ($12.4 billion), up 7.5% year over year. Within this wireless service revenue segment, data revenue (which is the prime contributor of growth) rose 16% year over year. Pay TV revenue increased 47% year over year on subscriber growth.
Equipment revenue was MXN$14.9 billion ($1.2 billion), up 12.7% year over year on the growing demand for smartphones.
Total costs and expenses in the reported quarter were up 12.7% year over year at around MXN$103.3 billion ($8.4 billion). On a year-over-year basis, cost of service, cost of equipment, selling, general and administrative expense, and other costs increased 13.1%, 9.3%, 14.6% and 16.3%, respectively.
Quarterly EBITDA inched up 1.0% year over year to MXN$63.9 billion ($5.3 billion). However, EBITDA margin plunged 230 basis points (bps) to 38.2% from 40.8% in the year-ago quarter due to increased costs associated with the infrastructural development of wireless and wire-line networks in Mexico and Brazil along with the related costs of increasing post-paid and PayTV subscriber base.
Similarly, quarterly EBIT dropped 3.3% sequentially to approximately MXN$39.3 billion ($3.2 billion) in the third quarter. EBIT margin fell 270 bps to 23.9% from 26.1% in the year-ago quarter.
Subscriber Statistics
America Movil’s total subscriber base reached 298 million, up 12.0% year over year. Within this total customer base, wireless and fixed-line subscribers were 241.5 million and 56.4 million, respectively, with both figures increasing 11.4% and 12.9% year over year.
Among the fixed-line customers, 29.3 million were subscribed to fixed voice, 14.6 million to fixed-broadband and 12.5 million to PayTV.
Results by Key Markets
Revenue from Mexico, America Movil’s home turf, climbed 2.5% year over year to MXN$63.5 billion ($5.2 billion). Mexican ARPU (average revenue per user) declined 6.2% to MXN$154 ($12.5) and the churn rate remained flat year over year at 3.2%.
Revenue from the Brazilian operation climbed 7.3% year over year to BRL5.7 billion ($3.6 billion). Brazilian ARPU fell 11.0% from the year-ago quarter to BRL17 ($10.7), while the churn rate increased 90 bps year over year to 4.0%.
America Movil’s U.S. operation (Tracfone) saw a 34.8% year-over-year growth in revenue to reach $989 million. U.S. ARPU increased 17.0% year over year to $16, while the churn rate dropped 20 bps to 4.2%.
Liquidity
At the end of the third quarter, America Movil had around MXN$126.7 billion ($10.4 billion) of cash and cash equivalents compared to MXN$114.1 billion ($9.2 billion) as of December 31, 2010. During the reported quarter, total debt was around MXN$27.8 billion ($2.27 billion) compared with MXN$26.0 ($2.2 billion) billion at year-end 2010.
Our Analysis
Despite a setback by interconnection rate cuts, America Movil managed to deliver a growth in terms of revenue given its widespread wireless market and expanding data and Pay TV servicesin Latin America. The increased penetration of 3G wireless services in Latin America, the expected launch of 4G services along with the growing demand for smartphones also augur well for the company’s growth.
However, competitive pressure from Brazilian and Mexican rivals like Telefonica (TEF) and Grupo Televisa (TV), declining fixed-line subscriber rate, subsidies on handsets and regulatory issues might limit the company’s financials in the near term.
Thus, we currently maintain a long-term Neutral recommendation on America Movil supported by a Zacks #3 Rank (Hold).
