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Stellar 1Q for America Movil

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Despite persistent declines in mobile termination rates, America Movil (AMX - Free Report) managed to exceed expectations in the first quarter of 2012. The company reported earnings per ADR of 65 cents, surpassing the Zacks Consensus Estimate of 47 cents and also improved 33% from 49 cents in the year-ago quarter. Net profit increased 37.5% year over year to MXN$32.6 billion (approximately $2.5 billion).

Total revenue was MXN$192.5 billion (approximately $14.8 billion), up 12.4% year over year and above the Zacks Consensus Estimate of $13.3 billion. The top-line growth 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$177.1 billion (approximately $13.6 billion), up 12.1% year over year. Within this wireless service revenue segment, mobile data revenue (which is the prime contributor of growth) grew 30.7% year over year. Pay TV revenue increased 25.4% year over year on subscribers gained from the acquisition of Net Serviços. Fixed-line data revenues also showed growth 8.5%.

Equipment revenue was MXN$15.4 billion (approximately $1.2 billion), up 15.7% year over year on the growing demand for smartphones.

Total costs and expenses in the reported quarter were up 15.9% year over year to around MXN$125 billion (approximately $9.6 billion). On a year-over-year basis, cost of service, cost of equipment and selling, general and administrative expense increased 18.1%, 24.9%, 9.5%, respectively.

Quarterly EBITDA increased 6.3% year over year to MXN$67.5 billion (approximately $5.2 billion). However, EBITDA margin plunged 200 basis points (bps) to 35.1% from 37.1% in the year-ago quarter due increased costs associated with infrastructural development of wireless and wireline networks in Mexico and Brazil along with the related cost of increasing post-paid and PayTV subscriber base.

Quarterly EBIT dropped 4.9% sequentially to approximately MXN$42.0 billion (approximately $3.2 billion) in the first quarter. EBIT margin fell 160 bps to 21.8% from 23.4% in the year-ago quarter.

Subscriber Statistics

America Movil’s total subscriber base reached 306 million, up 7.7% year over year. Within this total customer base, wireless and fixed-line subscribers were 246 million and 60 million, respectively, with the figures increasing 6.5% and 12.5% year over year.

Among fixed-line customers, 30 million were subscribed to fixed voice (landlines), 16 million to fixed-broadband and 14 million to PayTV.

Results by Key Markets

In the first quarter, revenue from Mexico, America Movil’s home turf, climbed 3.9% year over year to MXN$66.2 billion (approximately $5.1 billion). ARPU (average revenue per user) increased 4.7% to MXN$177 (approximately $13.6) and the churn rate increased 60 bps year over year to 3.6%.

Revenue from the Brazilian operation climbed 9.6% year over year to BRL7.7 billion (approximately $4.2 billion). ARPU fell 10.7% from the year-ago quarter to BRL17 (approximately $9.2), while the churn rate increased 40 bps year over year to 3.7%.

America Movil’s U.S. operation (Tracfone) saw a 24.4% year-over-year growth in revenue to reach $1.1 billion. ARPU increased 13.2% year over year to $16, while the churn rate dropped 20 bps to 3.9%.


At the end of first quarter, America Movil had around MXN$60.3 billion of cash and cash equivalents compared to MXN$64.5 billion as of December 31, 2011. Total debt was around $29.6 billion compared with $28.3 billion at year-end 2011. Capital expenditures were MXN$24.2 billion.

Our Analysis

Despite a setback by interconnection rate cuts, America Movil managed to deliver growth in terms of revenue given its widespread wireless market and expanding data and Pay TV services in Latin America. The increased penetration of 3G wireless services in Latin America, the expected launch of 4G services this year along with the growing demand for smartphones also augur well for the company’s growth.

However, competitive pressure from Brazilian and Mexican rivals like Telefonica (TEF - Free Report) and Grupo Televisa (TV - Free Report) , declining fixed-line subscriber rates, subsidies on handsets 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. For the short term (1-3 months), the stock has a Zacks #4 Rank (Sell).

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