AmericaMovil ( AMX - Analyst Report ) reported disappointing second quarter of 2012 with earnings per ADR of 26 cents missing the Zacks Consensus Estimate of 45 cents. Moreover, earnings per ADR decreased a whopping 51.7% year over year from 53 cents per share, hurt by unfavorable foreign currency exchange rate.

Net profit during the quarter was MXN$13.3 billion (approximately $980.6 million), down 45.5% year over year

Total revenue was MXN$191.7 billion (approximately $14.2 billion), up 9.3% year over year but below the Zacks Consensus Estimate of $14.5 billion. The year-over-year growth in revenue was mainly fueled by an increase in wireless subscribers and higher revenues from wireless data and Pay TV services.

Segment wise, Services revenue was MXN$175.5 billion (approximately $12.9 billion), up 9% year over year. Within the wireless service revenue segment, mobile data revenue (which is the prime contributor of growth) grew 32% year over year. Pay TV revenue increased 23% year over year. However, Fixed voice revenues declined 7.7% on slowdown in the long distance sales.

Equipment revenue was MXN$16.3 billion (approximately $1.2 billion), up 11.6% year over year on higher demand for smartphones.

Total costs and expenses in the reported quarter were up 12.7% year over year to around MXN$126.3 billion (approximately $9.3 billion). On a year-over-year basis, cost of service, cost of equipment, and, selling, general and administrative expense increased 13.9%, 21.4% and 6%, respectively.

Quarterly EBITDA increased 3.1% year over year to MXN$65.5 billion (approximately $4.8 billion). However, EBITDA margin plunged 210 basis points (bps) to 34.1% from 36.2% in the year-ago quarter. Quarterly EBIT dropped 1% year over year to approximately MXN$39.1 billion (approximately $2.9 billion). EBIT margin contracted 210 bps to 20.4% from 22.5% in the year-ago quarter.

Subscriber Statistics

America Movil’s total subscriber base reached 313 million, up 7.8% year over year. Within this total customer base, wireless and fixed-line subscribers were 251.8 million and 61.2 million, respectively, with the figures increased 6.7% and 12.4% year over year.

Among fixed-line customers, 30 million were subscribed to fixed voice (landlines), 16.1 million to fixed-broadband and 15.1 million to PayTV.

Results from Key Markets

In the second quarter, revenue from Mexico, America Movil’s home turf, climbed 3.3% year over year to MXN$66.5 billion (approximately $4.92 billion). Mexican ARPU (average revenue per user) increased 6.4% to MXN$175 (approximately $13) and the churn rate increased 50 bps year over year to 3.5%.

Revenue from Brazil climbed 4.1% year over year to BRL7.5 billion (approximately $3.8 billion). ARPU fell 15.3% year over year to BRL16 (approximately $8.2), while the churn rate increased 40 bps year over year to 3.9%.

America Movil’s U.S. operation (Tracfone) saw a 3.6% year-over-year growth in revenue to $0.95 billion. ARPU increased 7.4% year over year to $9, while churn rate remained flat at 3.3%.

Liquidity

At the end of second quarter, America Movil had around MXN$62.4 billion in cash and cash equivalents compared with MXN$64.5 billion as of December 31, 2011. Total debt was around MXN$31 billion compared with MXN$28.3 billion at year-end 2011. Capital expenditures were MXN$53.2 billion.

Our Analysis

Increased penetration of 3G wireless services in Latin America and the company’s foray into 4G services this year and the growing demand for smartphones augur well for the company’s growth.

However, competitive pressures from Brazilian and Mexican rivals like Telefonica ( TEF - Analyst Report ) and Grupo Televisa ( TV - Analyst Report ) , declining fixed-line subscriber rate, mounting debt and regulatory issues might limit the company’s financials in the near term. Thus, we maintain a long-term Neutral recommendation on America Movil.

Currently, the company has a Zacks#2 Rank, implying a short-term Buy rating.