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Spain’s Telefonica nudges up 2022 outlook despite economic clouds

Spain’s Telefonica nudged up its annual revenue and earnings forecasts on Thursday, striking a cautiously optimistic tone as it prepares for tougher economic times.

The move came after the telecoms firm reported second-quarter core earnings and revenues that beat analysts’ expectations, though its net profit came in just below forecast.

“We have done our homework and we feel more resistant,” CEO Jose Maria Alvarez-Pallete told Reuters.

Telefonica is prepared for rising interest rates, for instance, he said. “We have deployed the networks of fibre and 5G, the peak of intensity of our capital expenditure is behind us.”

Soaring consumer prices and slowing economies are creating new challenges for Telefonica which, like rivals, has seen profitability eroded in recent years by cut-throat competition and the need to invest in fibre and 5G networks.

The improved guidance left investors unimpressed, however. Telefonica shares were down 0.6% at 1200 GMT.

The company had previously expected both core earnings and revenue to grow in a low single digit percentage range this year. It now sees revenues growing at the “high-end” of that range, or close to 3%, according to the CEO, with core earnings at the “mid-to-high-end”, or up 2-3%.

Second quarter net profit came in a little below expectations at 320 million euros, but core earnings and revenue slightly higher at 3.15 billion euros and 10.04 billion respectively.

Analysts had expected net profit of 333 million euros, core earnings of 3.06 billion and revenue of 9.58 billion, according to a company-supplied consensus.

Quarterly net profit and core earnings fell 96% and 77% respectively from a year earlier after 2021 results were boosted to record levels by mergers and acquisitions (M&A).

Excluding M&A effects, but including the contribution of Telefonica’s 50% stake in a British joint venture, core earnings were up 3.4%.

Telefonica said it reduced the hit from inflation by hedging energy costs, pushing up prices through improved services, reducing wage increases and cutting headcount.

In many Latin American countries and in Britain, its fees are automatically indexed to inflation.

Telefonica also benefited from a weaker euro in the quarter. Reuters

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