Telefonica Brasil (VIV) Q4 Earnings Down, Revenues Grow Y/Y

Telefônica Brasil S.A. (NYSE:VIV) reported mixed fourth-quarter 2018 financial results, wherein the bottom line declined year over year but the top line increased.

Net Income

Net income for the fourth quarter decreased 2% year over year to R$1,486.7 million ($390.2 million). For full-year 2018, net income increased 93.7% to R$8,928.3 million. Quarterly pro forma net income was R$1,471.9 million ($386.4 million), down 3%.

Telefonica (MC:TEF) Brasil S.A. Price, Consensus and EPS Surprise

Revenues

Fourth-quarter net operating revenues improved 0.5% year over year to R$11,085.5 million ($2,909.9 million), primarily driven by the healthy performance of the postpaid, handsets and ultra-broadband revenues. For full-year 2018, net operating revenues increased 0.6% to R$43,462.7 million.

Other Quarterly Details

Operating costs were R$7,039.2 million, down 3.1% year over year. Recurring operating costs were R$6,959 million, down 1.8% owing to the simplification, efficiency and digitization initiatives, which resulted in cost reductions in 12 consecutive quarters.

Recurring EBITDA totaled R$4,126.5 million, reflecting an increase of 4.6% year over year, with margin of 37.2%. The rise was due to growth in mobile and ultra-broadband revenues, in addition to the cost-efficiency measures adopted by the company.

Quarterly Segmental Performance

Net operating revenues from Mobile Business increased 2.9% year over year to R$7,047.7 million ($1,850 million). This was mainly due to growth in Data and Digital Service, Handset and Interconnection revenues. However, the performance was negatively impacted by the macroeconomic scenario, growth of unlimited voice plans, lower interconnection tariffs, decrease in prepaid revenues and maturity of services like voice and SMS. At the end of the reported quarter, the company’s total mobile subscriber base was 73.2 million, down 2.4% year over year. Postpaid subscriber count grew 9.9% to 40.4 million, while prepaid customer count fell 14.2% to 32.8 million.

Fixed Line Business’ net operating revenues declined 3.5% year over year to R$4,037.8 million ($1,059.9 million) due to lower voice revenues and the company's decision of de-prioritizing the DTH business. This was due to the decrease in Voice revenues, cut in the fixed-to-mobile tariff and reduction in the fixed interconnection tariff in February 2018, partly offset by the positive evolution of Broadband revenues, Pay TV revenues and other services. Broadband ARPU (R$/month) grew 11.8% year over year to R$62.8 owing to organic growth in FTTH and upselling of xDSL customers. As of Dec 31, 2018, total fixed accesses were 22 million, reflecting a decline of 3.6% year over year. This was due to the lackluster performance of voice accesses owing to the maturity of the service, and decision to stop prioritizing growth in pay TV business using DTH technology.

Cash Flow and Liquidity

For full-year 2018, Telefônica Brasil’s recurring operating cash flow was R$7,366.4 million, up 10.5% year over year. As of Dec 31, 2018, it had R$3,381.3 million ($871.1 million) of cash and cash equivalents with R$4,675.3 million ($1,204.4 million) of loans and financing compared with the respective tallies of R$4,050.3 million and R$5,428.4 million a year ago.

Zacks Rank and Other Stocks to Consider

Telefônica Brasil currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the industry include BT Group plc (NYSE:BT) , Deutsche Telekom (DE:DTEGn) AG (OTC:DTEGY) and Telstra Corporation Limited (OTC:TLSYY) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BT Group currently has a forward P/E (F1) of 8.7x.

Deutsche Telekom currently has a forward P/E (F1) of 14.3x.

Telstra currently has a forward P/E (F1) of 12.9x.

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