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Telefonica Brasil's (VIV) Q4 Earnings Down Y/Y, Revenues Up

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Zacks Equity Research
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Telefonica Brasil S.A. VIV reported decent fourth-quarter 2019 results wherein the top line increased year over year. The company’s share price increased 1.29% in yesterday’s trading session to close at $13.38.

Net Income

Net income for the December quarter decreased 14.3% year over year to R$1,274 million ($309.5 million), due to higher tax payment stemming from lower interest on equity, higher depreciation charges, partly offset by ongoing cost control and EBITDA growth. For 2019, net income was R$5,001 million, down 44% year over year. This was mainly due to the non-recurring positive effect in 2018 of the final judgment of the Supreme Court of Justice, recognizing the right to exclude ICMS from the PIS/COFINS calculation base.

Telefonica Brasil S.A. Price, Consensus and EPS Surprise

Telefonica Brasil S.A. Price, Consensus and EPS Surprise
Telefonica Brasil S.A. Price, Consensus and EPS Surprise

Telefonica Brasil S.A. price-consensus-eps-surprise-chart | Telefonica Brasil S.A. Quote


Quarterly net operating revenues increased 2.6% year over year to R$11,377 million ($2,763.5 million), reflecting the solid results of postpaid, handsets and FTTH. The top line surpassed the consensus estimate of $2,695 million. For 2019, net revenues rose 1.9% year over year to R$44,268 million.

Quarterly Segment Results

Net revenues from Mobile Business increased 5.7% year over year to R$7,452 million ($1,810.1 million), driven by growth of ARPU, postpaid accesses and handset sales. Data and digital service revenues grew 5.8% year over year to R$5,451 million, backed by the company’s data-centric strategy. The performance was fueled by an increase in the usage of data and value-added services. Voice revenues fell 11.8% to R$1,170 million, mainly reflecting the migration to data services, as a result of service maturity.

Net handset revenues grew 46.2% to R$829 million driven by Black Friday and Christmas sales campaigns. This is in line with the strategy of gaining market share in the sale of handsets and accessories with positive margins, attracting high-end customers to its physical and online stores. At the end of 2019, the company’s total mobile subscriber base was 74.6 million, up 1.9% year over year. Postpaid subscriber count grew 6.9% to 43.2 million, while prepaid customer count fell 4.1% to 31.4 million. In Machine-to-Machine (M2M), the customer base grew 23% to 10.1 million. Telefonica Brasil is a leader in this segment with a market share of 41% in December 2019.

Fixed Line Business’ net revenues declined 2.8% year over year to R$3,925 million ($953.4 million), impacted by the decrease in voice and pay-TV revenues, however, partly offset by an increase in broadband, and corporate data and IT revenues. Broadband ARPU (R$/month) grew 14.1% year over year to R$71.7, supported by growth in the FTTH customer base.

At the close of fourth-quarter 2019, total fixed accesses were 19 million, reflecting a decline of 13.5% year over year. This was influenced by the performance of voice, xDSL and DTH, mainly due to service maturity and the strategic decision to stop selling pay TV using DTH technology since the beginning of third-quarter 2019.

Other Details

Recurring operating costs were R$7,026 million, up 1% year over year, mainly due to higher expenses related to handset sales, partly offset by automation and digitization initiatives. Cost of goods sold increased 25.3% year over year to R$921 million due to its strategy of focusing on handsets and equipment sales since fourth-quarter 2017, generating additional revenues for the company.

Recurring EBITDA totaled R$4,351 million, reflecting an increase of 5.4% year over year, with margin of 38.2%. The rise was due to growth in mobile and ultra-broadband revenues, combined with effective and lasting cost-efficiency measures adopted by the company.

Cash Flow & Liquidity

In 2019, Telefonica Brasil generated R$7,196 million of cash from operations, down 2.3% year over year. For the same period, its free cash flow from business activities was R$8,235 million, up 19% year over year, marking the highest ever cash generation registered by Vivo in a year. 

As of Dec 31, 2019, the telecommunications company had R$3,393 million ($843.3 million) in cash and equivalents with R$9,698 million ($2,410.4 million) of non-current loans, financing, debentures and leasing. This compares with the respective tallies of R$3,381 million and R$4,675 million a year ago.

Zacks Rank & Stocks to Consider

Telefonica Brasil currently has a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader sector are Motorola Solutions, Inc. MSI, Qualcomm Incorporated QCOM and Viasat, Inc. VSAT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Motorola topped earnings estimates in the trailing four quarters, the surprise being 6.6%, on average. 

Qualcomm surpassed earnings estimates in the trailing four quarters, the beat being 10%, on average.

Viasat topped earnings estimates in the trailing four quarters, the surprise being 402%, on average.

Conversion rate used:

R$1 = $0.242900 (period average from Oct 1, 2019 to Dec 31, 2019)

R$1 = $0.248541 (as of Dec 31, 2019)

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