Telefonica's 9-month profit misses forecasts

MADRID, SPAIN: Spanish telecoms group Telefonica reported a lower than expected net profit on Thursday, with an exceptional gain from the revaluation of Brazilian unit Vivo helping to mask a lacklustre performance in Spain.

Shares in the company were down 1.7 per cent at 17.99 euros by 0823 GMT, when the STOXX 600 European telecoms sector index was down 0.18 per cent.

Net profit for the first nine months of the year rose 65.6 per cent to 8.84 billion euros, short of the 72 per cent rise expected by analysts, on revenue up 6 per cent at 44.28 billion euros.

The performance of the euro zone's largest telecom company was skewed by its previously announced decision to revalue Vivo following its purchase of Portugal Telecom's stake in Brazil's biggest cellphone operator, adding 3.5 billion euros to group net profit.

Revenues in Latin America, which now account for over 40 per cent of the group's total, rose 10.7 per cent in the first nine months of the year, or 6.9 per cent in organic terms, while European revenue outside Spain was up 11.8 per cent.

In contrast revenue in Telefonica's closely-watched Spanish business, which still accounts for 30 per cent of the group, fell 3.6 per cent in the third quarter after a 3.2 per cent drop in the second, hit by a tough economy with nearly 20 per cent unemployment and fierce competition.

The previous quarter marked what some analysts had hoped was the start of a recovery.

"Vodafone gave extremely poor results from Spain earlier this week. These are not as bad as that and not as bad as last year but still, it's very slow to recover," said Kevin Yates, analyst at RBS in London.

Vodafone posted an 8 pct fall in revenue in Spain in the first half, and a 16 pct fall in EBITDA, citing a challenging economic and competitive environment.

According to a Reuters poll of 11 analysts, net profit for the first nine months of the year was expected to have risen 72.1 per cent to 9.19 billion euros ($12.62 billion), on a 5.8 per cent rise in revenue.

Telefonica, which will hold a conference call at 1500 GMT, also reiterated its dividend and earnings targets until 2012.