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America Movil Beats on Higher Revs

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AmericaMovil (AMX - Analyst Report) reported third quarter 2012 earnings per ADR of 61 cents, surpassing the Zacks Consensus Estimate of 49 cents. Moreover, earnings per ADR increased a whopping 58.8% over the year-ago quarter.

Net income for the quarter was MXN$30.6 billion (approximately $2.33 billion), up 66.8% year over year.

Total revenue was MXN$191.7 billion (approximately $14.7 billion), up 4.5% year over year and above the Zacks Consensus Estimate of MXN$189.5 billion ($14.4 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$176.1 billion (approximately $13.4 billion), up 3.8% year over year. Within the wireless service revenue segment, mobile data revenue (which is the prime contributor of growth) grew 35.3% year over year.

With respect to wireline services, voice revenues declined 7.2% on slowdown in the long distance sales. Wireline data revenues increased 5.4% year over year. Pay TV revenue increased 21% year over year.

Equipment revenue was MXN$16.7 billion (approximately $1.3 billion), up 12% year over year on higher demand for smartphones.

Total costs and expenses in the reported quarter were up 6.7% year over year to around MXN$126.6 billion (approximately $9.6 billion).

Quarterly EBITDA increased 0.6% year over year to MXN$66.2 billion (approximately $5.0 billion). However, EBITDA margin plunged 130 basis points (bps) to 34.4% from 35.7% in the year-ago quarter. Quarterly EBIT inched up 0.1% year over year to MXN$40.8 billion (approximately $3.1 billion). EBIT margin contracted 90 bps to 21.2% from 22.1% in the year-ago quarter.

Subscriber Statistics

America Movil’s total subscriber base reached 318.7 million, up 7% year over year. Within its total customer base, wireless and fixed-line subscribers were 255.9 million (up 6% year over year) and 62.8 million (up 11.3%), respectively.

Among fixed-line customers, 30.3 million were subscribed to fixed voice (landlines), 16.7 million to fixed-broadband and 15.8 million to PayTV.

Results from Key Markets

In the third quarter, revenue from Mexico, America Movil’s home turf, climbed 4.5% year over year to MXN$68.4 billion (approximately $5.2 billion). Mexican ARPU (average revenue per user) increased 9.6% to MXN$179 (approximately $13.60) and the churn rate increased 40 bps year over year to 3.6%.

Revenue from Brazil climbed 1.9% year over year to BRL7.6 billion (approximately $3.9 billion). ARPU fell 15.6% year over year to BRL15 (approximately $7.40), while the churn rate decreased 60 bps year over year to 3.4%.

America Movil’s U.S. operation (Tracfone) saw a 28.6% year-over-year growth in revenue to $1.3 billion. ARPU increased 13.8% year over year to $18, while churn rate declined 40 bps to 3.9%.

Liquidity

At the end of third quarter, America Movil had around MXN$48 billion ($3.6 billion) in cash and cash equivalents compared with MXN$64.5 billion ($5.2 billion) as of December 31, 2011. Long-term debt was around MXN$390.8 billion (approximately $31.8 billion) compared with MXN$368 billion (approximately $29.7 billion) at year-end 2011. Capital expenditures were MXN$81.7 billion (approximately $6.2 billion).

Our Analysis

We believe consistent revenue growth, increased market penetration of 3G data services, expected launch of 4G services and smartphone penetration are the key drivers for earnings going forward.

Although we are encouraged by America Movil’s operating performance and future business prospects, we remain concerned about the competitive and regulatory issues across the company’s major markets, which may impact subscriber retention in the long run. Further, competitive pressures from Brazilian and Mexican rivals like Telefonica (TEF - Analyst Report) and Grupo Televisa (TV - Analyst Report), declining fixed-line subscriber rate and highly leveraged balance sheet position would likely limit the company’s financials.

The stock currently retains a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating. For the long term, we have a Neutral recommendation on America Movil.

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