America Movil Profit Rises as Smartphones Boost Data Use

Feb 12, 2014 5:22 pm ET

(Updates with closing shares in the seventh paragraph.)

Feb. 12 (Bloomberg) -- America Movil SAB, the mobile-phone company controlled by billionaire Carlos Slim, said fourth- quarter profit rose as customers paid more for data and the pay- TV business strengthened in Brazil.

Sales for the Mexico City-based carrier climbed 3.1 percent from a year earlier to 204.1 billion pesos ($15.4 billion), America Movil said yesterday in a statement. The company added 4.8 million wireless users, compared with the 4.7 million average estimate of five analysts polled by Bloomberg.

America Movil’s customers are using more wireless Internet services as a result of Chief Executive Officer Daniel Hajj’s plan to sell smartphones at deep discounts in exchange for two- year contracts. The offers lured more long-term subscribers in Mexico, where the company gets about 37 percent of revenue.

The carrier added more than half a million cable and satellite-TV clients in the quarter, with pay-TV sales increasing about 22 percent, led by growth in Brazil, Colombia, Chile and Peru.

Customers’ increasing preference for smartphones boosted mobile data revenue by 19 percent, helping increase monthly spending per user in every region except Mexico.

That growth came at a price, as expenses to purchase smartphones rose at about four times the rate of total costs, the company said. Those smartphones, resold to customers at a discount, helped lead to a decline in profit margins in every market except for Brazil, Central America and the U.S.

America Movil shares fell 1.3 percent to 14.14 pesos at the close of trading in Mexico City.

Brazilian Growth

Brazil, America Movil’s largest market after Mexico, was a standout, with a profit margin that climbed to 24.7 percent from 21.2 percent a year earlier. Overhead expenses fell after America Movil combined its Brazilian units, including wireless carrier Claro, long-distance company Embratel and cable provider Net. Advertising costs also declined in Brazil.

Brazil now represents 25.5 percent of America Movil’s mobile-phone subscribers, compared with Mexico’s 27.2 percent. Having more diverse sources of revenue may help the company as its home country moves to cut into its market share.

America Movil is awaiting a decision by March 9 from Mexico’s telecommunications regulator on whether the company is dominant in the market. A ruling would subject America Movil, which has about 70 percent of the country’s mobile-phone subscribers, to possible sanctions including higher interconnection rates and forced divestment of assets.

The company provided the regulator with a “thorough response from a technical, economical and legal basis,” it said in the quarterly report.

Buybacks Slowing?

America Movil, which made a failed bid for Royal KPN NV last year, said it reduced its stake in the Dutch carrier to 27.1 percent in December from 29.8 percent three months earlier. The change was part of a plan to cut debt levels by the end of the year, Hajj said on a call with analysts today.

America Movil bought back almost 5.4 billion shares in 2013, or 7.1 percent of outstanding stock, as it struggled to prop up the stock price amid the regulatory threats. That helped push its ratio of net debt to earnings to 1.7 times at the end of December, above the company’s target of 1.5 times.

Buybacks and dividends could drop substantially this year to bring debt leverage closer to America Movil’s target, Lucio Aldworth, a Citigroup Inc. analyst, said in a note last week.

Hybrid Debt

Adjusting for hybrid debt on America Movil’s balance sheet, the company’s liquidity ratio is closer to 1.55 times, Chief Financial Officer Carlos Garcia-Moreno said today. The carrier sold $2.8 billion worth of hybrid securities in September, and debt-rating companies typically count half of those type of instruments as equity, Garcia-Moreno said.

“We are perfectly comfortable” with leverage, Garcia- Moreno said. “We have been very careful to fine-tune our financial position. We are exactly where we wanted to be.”

Including currency changes, earnings before interest, taxes, depreciation and amortization rose 1.4 percent to 63.5 billion pesos, hurt by the decline of South American currencies such as the Brazilian real and the Argentine peso, since America Movil records its results from those countries in Mexican pesos. Leaving out currency changes, the earnings would have been up 5.7 percent.

America Movil added 1.2 million subscriptions for landline services including phone, Internet and television, compared with a 1.6 million average analyst estimate.

Net income rose by 16 percent to 17.2 billion pesos, aided by one-time benefits that reduced tax charges by about 73 percent.

--Editors: Crayton Harrison, John Lear