Telefonica's (TEF) Q1 Earnings and Revenues Decline Y/Y

Telefonica, S.A. TEF reported a first-quarter 2022 net income of €706 million, plunging 20.3% year over year. Further, adjusted earnings per share were €0.12 (14 cents) compared with €0.14 (22 cents) in the prior-year quarter.

Quarterly total revenues declined 9% year over year to €9,410 million ($10,558.4million). However, organic revenues (aggregating 50% of Virgin Media O2 joint venture results) grew 3.2% year over year.

Telefonica SA Price, Consensus and EPS Surprise

Telefonica SA Price, Consensus and EPS Surprise

Telefonica SA price-consensus-eps-surprise-chart | Telefonica SA Quote

Results by Business Units

Telefonica Espana: Quarterly revenues in Spain increased 0.9% year over year on a reported basis to €3,079 million. This is due to growth in service revenues because of rising APRU as well as growth in handset sales. The quarterly OIBDA margin declined to 36.9% from 39.2% in the year-ago quarter. Capital expenditure (CapEx) increased 11.5% to €296 million in the quarter.

Telefonica Deutschland: Quarterly revenues rose 5.2% to €1,946 million. The improvement was driven by core business strength and high customer demand for the O2 Free portfolio, which drove the contract mobile base. The quarterly OIBDA margin was 31.3% compared with 30.1% in the year-ago quarter, reflecting operating inefficiencies. CapEx rose 16.1% to €265 million in the quarter.

VirginMedia-O2 U.K.: Quarterly revenues of this newly formed segment increased 4.3% to €2,989 million, fueled by improving mobile trends. Solid mobile revenues and increasing price of mobile phones boosted the segment’s performance in the quarter. However, it was partly offset by soft B2B revenues. The quarterly OIBDA margin increased to 36.8% from 36% in the prior-year quarter. CapEx decreased 41.9% to €606 million In the quarter.

Telefonica Brasil: Quarterly revenues in Brazil grew 18.1% to €1,942 million mainly due to the fixed and service revenue growth. The quarterly OIBDA margin decreased to 41.4% from 42.7% in the prior-year quarter. CapEx jumped 9.7% to €323 million in the quarter.

Telefonica Infra (Telxius): TEF continued to add value throughout its portfolio in the first quarter and completed the first rounds of work on new fiber JVs. Negotiations have started with investors in the U.K. and Spain to deploy sustainable FTTH networks in underserved areas. Unsere Grüne Glasfaser has more than a quarter of a million buildings in Germany that are covered by MoUs with municipalities. In Brazil, FiBrasil is on track to accomplish its deployment goal, having exceeded 2.2 million premises in the first quarter.

In Chile, ONNET Fibra continued to deploy at a rapid pace, passing 200k more premises and maintaining its FBB market leadership. Meanwhile, in Colombia, the KKR deal was completed in January 2022 after getting all essential regulatory permissions, and the company intends to reach 4.3 million premises in three years.

Telefonica Tech: Revenues increased 80.6% year over year to €299 million, considerably above the market. This was driven by the robust performance throughout businesses, as well as the integration of operations in 2021.The Cyber business unit is outperforming estimates, with first-quarter IoT revenues expanding in double digits.

Telefonica Hispam: Quarterly revenues in this segment rose 10.9% to €2,150 million, mainly buoyed by growth across all countries. The quarterly OIBDA margin was 27.8% compared with 20.4% in the prior-year quarter. CapEx was down 66.8% to €116 million in the quarter.

Other Details

Quarterly OIBDA was €3,199 million, down 6.4% year over year. Operating income was €1,090 million in the quarter under review compared with €1,394 million in the prior-year quarter.

Cash Flow & Liquidity

In the quarter under review, Telefonica generated €2,003 million of net cash from operating activities compared with €2,556 million a year ago. Free cash flow for the same period totaled €513 million, which includes principal payments of leases.

As of Mar 31, 2022, the company had €8,112 million in cash and cash equivalents, with €53,453 million of non-current financial liabilities.

2022 Outlook

The company expects to achieve low-single-digit growth in revenues and OIBDA, as well as a CapEx-to-sales ratio of up to 15%.

In addition, the company announced a cash dividend of €0.30 per share for 2022, payable in December 2022 (€0.15 per share) and June 2023 (€0.15 per share). The company also announced the cancellation of shares representing 2.41% of the share capital held as treasury stock.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader industry are OGE Energy OGE, RWE AG RWEOY and National Fuel Gas Company NFG. OGE, RWE and National Fuel currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for OGE’s 2022 earnings is pegged at $2.15 per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 3.5%.

Shares of OGE have gained 14.9% in the past year.

The Zacks Consensus Estimate for RWE’s 2022 earnings is pegged at $2.72 per share, rising 12% in the past 60 days. The long-term earnings growth rate is anticipated to be 4.5%.

Shares of RWEOY have risen 6.8% in the past year.

The Zacks Consensus Estimate for National Fuel Gas’s 2022 earnings is pegged at $5.97 per share, rising 11.4% in the past 60 days. The long-term earnings growth rate is anticipated to be 10%.

National Fuel’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 9.9%. NFG shares have gained 29.4% in the past year.

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