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America Movil (AMX - Analyst Report), the largest telecom carrier in Latin America, has reported fourth-quarter earnings per ADR of 30 cents. The results missed the Zacks Consensus Estimate of 50 cents and were slightly below 31 cents earned in the year-ago quarter.

Total revenue was MXN$198.0 billion ($15.1 billion), down 1.1% year over year but above the Zacks Consensus Estimate of $14.9 billion. The decline was primarily due to unfavorable exchange rate fluctuations. Excluding this impact, total revenue was up 5.8% year over year.

Total revenue for the year increased 6.0% year over year to MXN$775.1 billion ($60.0 billion).

Segment wise, Services revenues were MXN$176.8 billion ($13.7 billion), down 2.1% year over year on currency fluctuations. However, excluding the impact, service revenues grew 5.2% driven by mobile data services and PayTV. Within this wireless service revenues segment, data revenues rose 33.3% while Mobile voice revenues dipped 1.7%.  Pay TV revenues increased 20% year over year on subscriber growth. Fixed-line voice revenues declined 7.2% year over year.

Equipment revenue was MXN$21.2 billion ($1.6 billion), up 8.2% year over year on the growing demand for smartphones.

Total costs and expenses in the reported quarter were up 2.4% year over year at MXN$136.4 billion ($10.5 billion). On a year-over-year basis, other costs, cost of equipment and selling, general and administrative expenses increased 47.6%, 5.6% and 2.8%, respectively. However, the cost of service declined 0.6% year over year.

Total cost for 2012 increased 9.0% year over year to MXN$514.2 billion ($39.1 billion) based on 16.2%, 13.4%, 8.3% and 5.4% rise in cost of equipment, other costs, cost of service and , selling, general and administrative expenses, respectively.

Quarterly EBITDA fell 8.0% year over year to MXN$61.7 billion ($4.8 billion). EBITDA margin dropped 240 basis points year over year to 31.1% due to increased costs associated with the infrastructural development of wireless and wireline networks in Mexico and Brazil along with the related costs of increasing post-paid and PayTV subscriber bases.

For 2012, EBITDA increased 0.4% year over year to MXN$260.9 billion ($19.9 billion) but EBITDA margin dropped 180 basis points to 33.7%.

Subscriber Statistics

America Movil’s total subscriber base reached 326 million in December 2012, up 8.7% year over year. Within this, wireless and fixed-line subscribers were 262 million and 64 million, respectively, increasing 8.2% and 10.8% year over year.

Results by Key Markets

Quarterly revenues from Mexico, America Movil’s home turf, climbed 0.5% year over year to MXN$70 billion ($5.4 billion). Mexican ARPU (average revenue per user) increased 2.6% and the churn rate declined 2.0% year over year.

Revenues from the Brazilian operation climbed 3.3% year over year to BRL7.9 billion ($3.8 billion) in the fourth quarter. Brazilian ARPU and churn rate fell 12.3% and 0.3%, respectively.

America Movil’s U.S. operation (Tracfone) saw a 30.8% year-over-year growth in fourth quarter revenues to reach $1.4 billion. U.S. ARPU increased 14.9% year over year, while the churn rate dropped 0.2% year over year.

Liquidity

At the end of 2012, America Movil had around MXN$45.5 billion ($3.5 billion) of cash and cash equivalents compared with MXN$64.5 billion ($5.2 billion) as of December 31, 2011. Total long-term debt was around MXN$404.1 billion ($30.8 billion) compared with MXN$368.0 billion ($29.7 billion) at year-end 2011.

Other Stocks

Cellcom Israel Ltd. (CEL - Snapshot Report), which has a Zacks Rank #1 (Strong Buy) is another stock in this sector worth considering.

Our Analysis

We believe that continued demand in wireless data and PayTV services and a growing subscriber base, in particular post-paid users, bode well for the company’s profitability. The company launched 4G services in Mexico in 2012, providing market share gains and a competitive advantage.

Despite being the undisputed market leader in the Latin American telecom market, America Movil remains highly exposed to competitive threats from Brazilian and Mexican rivals like Telefonica (TEF - Analyst Report) and Grupo Televisa (TV - Analyst Report). Additionally, regulatory issues across the company’s major markets, reduced MTRs and subsidies over handsets could be detrimental to its future growth.

America Movil has a Zacks Rank #3 (Hold).

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