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America Movil (AMX - Analyst Report), the largest telecom carrier in Latin America has reported second quarter earnings per ADR of $1.04, which breezed past the Zacks Consensus Estimate of 49 cents and climbed 23.8% from $0.84 in the year-ago quarter. The outperformance was driven by strong wireless subscriber growth as well as Pay TV and broadband expansion in Latin America. Net profit grew 14.1% year over year to MXN$24.2 billion ($2.1 billion).

Total revenue was approximately MXN$159.7 billion ($13.6 billion), up 7.8% year over year and ahead of the Zacks Consensus Estimate of $13.5 billion despite a 71% reduction in mobile termination rates in Mexico. The top-line growth was mainly fueled by an increase in wireless subscribers and higher revenues from wireless data services, Pay TV and broadband services.

Segment wise, Services revenue was MXN$145.1 billion ($12.4 billion), up 7.6% year over year. Within this wireless service revenue segment, data revenue (which is the prime contributor of growth) jumped 26.7% year over year. Pay TV revenue shot up 71.3% year over year on increased subscribers.

Equipment revenue was MXN$14.6 billion ($1.2 billion), up 9.8% year over year on the growing demand for smartphones.

Total costs and expenses in the reported quarter were up 12.0% year over year at around MXN$97.7 billion ($8.3 billion). On a year-over-year basis, cost of service, cost of equipment, selling, general and administrative expense, and other costs increased 11.3%, 10.9%, 14.5% and 4.3%, respectively. 

Quarterly EBITDA inched up 1.8% year over year to MXN$62.0 billion ($5.3 billion). However, EBITDA margin plunged 230 basis points (bps) to 38.8% from 41.1% in the year-ago quarter due to a 340 bps decline in Mexican operation’s EBITDA margin. Similarly, quarterly EBIT dropped 1.4% sequentially to approximately MXN$38.2 billion ($3.3 billion) in the second quarter. EBIT margin fell 220 bps to 23.9% from 26.1% in the year-ago quarter.

Subscriber Statistics

America Movil’s total subscriber base reached 290 million, up 12.1% year over year. Within this total customer base, wireless and fixed-line subscribers were 236 million and 54.5 million, respectively, with both figures increasing 2.2% and 2.7% year over year.

Among fixed-line customers, 28.9 million were subscribed to fixed voice, 14 million to fixed-broadband subscriber and 11.6 million to PayTV.

Results by Key Markets

Revenue from Mexico, America Movil’s home turf, inched up 1.7% year over year to MXN$62.4 billion ($5.3 billion). Mexican ARPU (average revenue per user) declined 7.3% to MXN$155 ($13.2) and the churn rate remained flat year over year at 3.0%.

Revenue from the Brazilian operation climbed 8.8% year over year to BRL5.7 billion ($3.6 billion). ARPU fell 11.7% from the year-ago quarter to BRL17 ($10.7), while the churn rate increased 30 bps year over year to 3.5%.

America Movil’s U.S. operation (Tracfone) saw a 33.9% year-over-year growth in revenue to reach $916 million. ARPU increased 20.6% year over year to $15, while the churn rate increased 30 bps to 4.3%.

Liquidity

At the end of second quarter 2011, America Movil had around MXN$87.5 billion ($7.5 billion) of cash and cash equivalents compared with MXN$114.1 billion ($9.2 billion) as of December 31, 2010. During the reported quarter, total debt was around MXN$25.7 billion ($2.19 billion) compared with MXN$26.0 ($2.2 billion) billion at year-end 2010.

Our Analysis

America Movil continues to dominate the Mexican wireless market by expanding data and Pay TV services. Additionally, increased penetration of 3G wireless services in Latin America, the expected launch of 4G services along with the growing demand for smartphones augur well for the company’s growth. However, competitive pressure from Brazilian and Mexican rivals like Telefonica (TEF - Analyst Report) and Grupo Televisa(TV - Analyst Report), declining fixed-line subscriber rate, subsidies on handsets, reduced mobile termination rates (MTRs) and regulatory issues might limit the company’s financials in the near term.

Thus, we currently maintain a long-term Neutral recommendation on America Movil supported by a Zacks #3 (Hold) Rank.

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