America Movil Profit Rises as Units Abroad Outshine Mexico

Jul 22, 2014 9:48 am ET

(Updates with analyst’s comment in fourth paragraph.)

July 22 (Bloomberg) -- America Movil SAB beat second- quarter estimates for adjusted earnings and sales as growth outside of Mexico shone through the gloom of tougher regulations in its home market, where it lost 2 million subscribers.

Billionaire Carlos Slim’s mobile-phone carrier said profit rose 2.4 percent from a year earlier to 66.6 billion pesos ($5.1 billion), leaving out interest, taxes, depreciation and amortization. That compared with the average estimate of 65.8 billion pesos of nine analysts compiled by Bloomberg.

Profit margins in countries such as Brazil and Colombia expanded, helping make up for some of the impact of new rules in Mexico, which required America Movil to cut some fees for phone calls. Slim is preparing to break up America Movil’s Mexican unit after lawmakers approved regulations to punish the operator for having the majority of its wireless and landline subscribers. The company is still determining which assets it will sell.

“AMX’s results came as a positive surprise,” Gregorio Tomassi, an analyst at Banco Itau BBA, said in a note today, referring to the company by its ticker symbol. “Brazil continues to deliver solid Ebitda-margin expansion.”

America Movil shares climbed 1.9 percent to 15.36 pesos at 8:34 a.m. in Mexico City. The telecommunications giant has led gains in Mexico’s benchmark IPC index this month as analysts cheer Slim’s decision to sell assets in Mexico, generating proceeds he could potentially invest in faster-growing markets.

Sanctions Remain

In the meantime, sanctions that force the company to share its infrastructure and cut the fees it charges other operators to connect to its network will remain in place until the regulator certifies the breakup plan was effective.

Net income rose to 18.8 billion pesos, or 27 centavos a share, from 14.2 billion pesos, or 19 centavos, a year earlier. Sales climbed 4 percent to 202.6 billion pesos, exceeding the average estimate of 198.7 billion pesos.

Fee cuts already put in place by Mexico’s telecommunications regulator cut the local unit’s profit margin to 43.6 percent, down 0.9 percentage point from a year earlier. Mexican wireless subscriptions fell to 71.3 million, with mobile voice revenue falling 8.7 percent on lower fees due to regulations, America Movil said.

While the average monthly phone bill in Mexico dropped by 1.1 percent to 169 pesos, mobile-data demand helped push total wireless service revenue up 0.4 percent from a year earlier in Mexico.

The regulatory impact could have been worse, Tomassi said. Ebitda in Mexico dropped 1.8 percent to 30.4 billion pesos, compared with his estimate for a 5.7 percent decline.

Brazil Expansion

Profit margins climbed 2.2 percentage points from a year earlier to 25.5 percent in Brazil, which now represents about 25.8 percent of America Movil’s wireless customers, compared with Mexico’s 26.7 percent. Earnings in Brazil were also aided by demand for TV service.

America Movil lost a total of about 5.3 million wireless subscribers in the second quarter. The company said its Central America and Caribbean unit, which operates in countries including Panama, Guatemala and Puerto Rico, lost about 3.2 million subscribers, without specifying the reason.

To further diversify beyond its home market, America Movil has been acquiring assets in Europe. Last week, Slim’s company said it would pay 743 million euros ($1 billion) to boost its stake in Telekom Austria AG to 50.8 percent, concluding a more than two-year quest to operate in Europe. Under a syndicate agreement between America Movil and Austria’s state holding company, they are committed to increase Telekom Austria’s capital by 1 billion euros.

KPN Selloff

America Movil cut its stake in Dutch phone carrier Royal KPN NV to 22.6 percent, the Mexican company said today, down from 24.8 percent in a filing in April. Chief Financial Officer Carlos Garcia-Moreno has said America Movil intends to retain enough of a stake to keep two board seats at KPN.

Losses from the sale of KPN shares, which have sunk about 39 percent since America Movil first disclosed a stake in 2012, totaled 3.7 billion pesos in the quarter.