Telefonica Core Earnings Fall 32% On Lay-Off Costs

Spanish telecoms group Telefonica posted on Tuesday a 32% decline in third-quarter core profit as one-off costs related to a lay-off plan in its struggling home market overshadowed solid results in Brazil and Britian.

Like other large telecoms firms in Europe, where it ranks fourth in the sector by market value, Telefonica is battling to find ways to boost profit growth in an increasingly crowded market.

Operating income before depreciation and amortisation (Oibda) fell to 2.748 billion euros ($3.06 billion), missing an analyst forecast compiled by the company of 2.851 billion euros.

But Telefonica reiterated its guidance for the year, saying it expected solid earnings in the fourth quarter to help it meet its target of 2% annual core earnings and revenue growth.

Its shares fell 1.8% with the main Spanish stock market index 0.3% lower.

The quarterly results were affected by 1.9 billion euros in one-off costs, mainly related to a lay-off plan in Spain announced by the company in September, which should deliver annual cost savings of around 210 million euros from 2020.

Organic core earnings in Spain grew by just 0.1% for the quarter, amid tough competition from other operators.

“Whilst group headline numbers are ahead of estimates we believe the focus will be on Spain where the recovery is much slower than what is needed to meet the management’s ‘soft’ guidance of a return to revenue and underlying growth for the FY 2019,” Barclays analysts said in a report.

In Brazil, organic revenue growth was 2.6%, the highest in 15 quarters, mainly due to improvements at the group’s mobile business.

Meanwhile, core earnings in Britain rose by 5.7%, while revenue climbed 4.1%, the company said.―Reuters