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Spanish telecom giant, Telefonica S.A. reported first-quarter 2013 results, with earnings of 20 Euro cents per share (26 cents per ADS) that rose 22.2% year over year.

The company recorded revenues of €14,141 million ($20,541 million) in the first quarter that dropped 8.8% year over year on a reported basis and 1.6% on an organic basis.

In the first quarter, adjusted operating income, before depreciation and amortization (OIBDA), fell 0.1% to €4,567 million ($6,032), resulting in an adjusted OIBDA margin of 32.3%, down 50 basis points year over year.

Segment Results

Telefonica Latin America: Revenues increased 3.8% year over year to €7,232 million ($39.2 billion) in the first quarter, driven largely by Peru (9.7%), Uruguay (5.8%), Ecuador (5%), Argentina (5%), Central America (3%), Chile (0.7%). However, revenues from Brazil, Venezuela Columbia and Mexico registered a decline of 9.5%, 6.1%, 3.0%, and 0.6%, respectively in the first quarter.

Telefonica Europe: Revenues from Europe slid 11.7% year over year to €6,675 million ($8,815.6 million). The reported downside was owing to the operator’s Spanish revenues that slipped 16.4% year over year to €3,260 million ($4,305.5 million).

In Spain, Wireless revenues fell 24.7% to €1,286 million ($1,698.4 million) resulting from a reduction in MTRs. Hurt by weak traffic revenues and repositioning of the new tariff portfolio, Wireline revenues stood at €2,220 million ($2,931.9 million), down 10.9% from the year-ago period.

In the reported period, revenues from the Ireland and Czech Republic declined 12.1% and 6.2% year over year to €136 million ($179.6 million) and €466 million ($615.4 million), respectively. Revenues from Germany and U.K. showed a 2.3% and 6.6% decrease to reach €1,230 billion ($1,624 million) and €1,605 million ($2,119 million), respectively.

Subscriber Statistics

At the end of the first quarter, total customer access reached approximately 309 million, up 1.9% year over year.

On an year over year basis, mobile access rose 2.6% to 247.3 million customers. The total Internet and data access grew 0.6% to 19.4 million. Pay-TV access reached 3.30 million, down 0.6% year over year. Fixed telephony access dropped 1.3% to 39.8 million subscribers at the end of the reported period.

Liquidity and Capital Expenditure (CapEx)

Telefonica exited the quarter with a net debt of about €51.81 billion ($68.43 billion), up from €51.25 billion ($65.90 billion) recorded at the end of 2012. The leverage ratio (net debt-to-EBITDA) stood at 2.41 times compared with 2.36 times in 2012.

CapEx was down 21.1% year over year to €626 million ($827 million) in the reported period. Operating cash flow (OIBDA-CapEx) was €1.679 ($2.217) million in the reported period, up 23.1% year over year.

Our Take

Telefonica continues to remain under pressure due to intensifying European woes, weak domestic operations, slowdown in Brazil operations, adverse regulations, a highly leveraged balance sheet and growing competition from France Telecom S.A.Vodafone Group Plc (VOD - Analyst Report) and America Movil S.A.B. de C.V. (AMX - Analyst Report).

Telefonica currently has a Zacks Rank #3 (Hold).

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