Telefonica open to a deal in Brazil as quarterly earnings slide

MADRID (Reuters) - Telefonica TEF.MC could make an offer for cash-strapped rival Oi's OIBR4.SA Brazilian mobile assets, its chief operating officer said on Tuesday, after the Spanish telecoms group posted a sharp decline in third-quarter earnings.

FILE PHOTO: A general view shows the Telefonica headquarters in Madrid, Spain, June 12, 2018. REUTERS/Juan Medina/File Photo

Reuters previously reported Oi was in talks with Telefonica and Italy's Telecom Italia TLIT.MI about a potential sale of its mobile network to avoid insolvency.

“Lots of stars need to be aligned but it looks like this time they may actually align at some point,” Telefonica COO Angel Vila told a call for analysts, adding that such a deal could create value for Telefonica due to potential savings.

Like other large telecoms firms in Europe, where it ranks fourth in the sector by market value, Telefonica is battling to find ways to boost profits in an increasingly crowded market.

The company reported a 32% fall in third-quarter core profit earlier on Tuesday as one-off costs related to a lay-off plan in its struggling home market overshadowed solid results in Brazil and Britain.

Telefonica’s shares slipped 1.7%, while the main Spanish stock market index was 0.2% lower.

“Whilst group headline numbers are ahead of estimates we believe the focus will be on Spain where the recovery is much slower than what is needed to meet the management’s ‘soft’ guidance of a return to revenue and underlying growth for the financial year 2019,” Barclays analysts said in a report.

Operating income before depreciation and amortization (Oibda) fell to 2.748 billion euros ($3.06 billion), missing an analyst forecast compiled by the company of 2.851 billion euros.

The quarterly results were affected by 1.9 billion euros in one-off costs, mainly related to the lay-off plan in Spain announced in September and which aims to deliver annual cost savings of about 210 million euros from 2020.

Telefonica reiterated its guidance for the year, saying it expected solid earnings in the fourth quarter to help it meet its target of 2% annual core earnings and revenue growth.

Organic core earnings in Spain grew by just 0.1% for the quarter, amid tough competition from other operators, but accelerating from the previous quarter’s -1.6%.

In Brazil, organic revenue growth was 2.6%, the highest in 15 quarters, mainly due to improvements at the group’s mobile business. Core earnings in Britain rose by 5.7%, while revenue climbed 4.1%, the company said.

A 40% surge in free cash flow helped the group reduce overall net debt by 8.1% on year.

Editing by Emelia Sithole-Matarise and Edmund Blair