America Movil Falls as Costs Squeeze Profit: Mexico City Mover

February 12, 2012, 7:13 PM EST

By Crayton Harrison

Feb. 10 (Bloomberg) -- America Movil SAB, the biggest mobile-phone carrier in the Americas, reported fourth-quarter profit that missed analysts’ estimates as costs rose to recruit new subscribers and service debt.

Profit excluding interest, tax, depreciation and amortization rose 3.9 percent to 64.5 billion pesos ($5.1 billion), missing the 65.2 billion average estimate of six analysts polled by Bloomberg. The Mexico City-based carrier’s Mexican and Brazilian units had lower profit margins as more customers signed up for long-term contracts that often come with discounted phones.

America Movil, controlled by billionaire Carlos Slim, is shifting its prepaid phone users to contract plans to increase customers’ loyalty and encourage them to add more services, such as Internet access. Contract subscribers rose 20.5 percent in 2011, compared to 7.4 percent growth for all wireless users.

“Contract clients are more expensive, but they’re much more stable and productive,” said Martin Lara, an analyst at Corp. Actinver SAB in Mexico City. “There are many incentives to add postpaid clients.” He recommends buying the shares.

Fourth-quarter net income slid to 16.3 billion pesos ($1.3 billion) from 25.5 billion pesos a year earlier, America Movil said yesterday in a statement. A weaker peso and higher interest expenses boosted financing costs fourfold to 11.1 billion pesos, hurting profit. Sales rose 12 percent to 182 billion pesos, beating the 173 billion-peso average of analyst estimates.

Interest Expense

America Movil is paying more interest after borrowing to acquire fixed-line companies Telmex Internacional SAB and Telefonos de Mexico SAB in the past two years. Net debt rose 55 percent to 321 billion pesos from a year earlier. Cash flow should pay down that figure over time, Lara said.

The company changed its accounting for prepaid wireless subscribers to eliminate those who hadn’t added minutes to their account during “a determined period,” according to the filing. That eliminated 4.85 million clients from the company’s rolls.

Even with that elimination, America Movil had a net gain of 304,000 mobile subscribers, suggesting that excluding the purged clients, it added about 5.2 million during the quarter. That compared with the 5.83 million estimate of James Rivett, an analyst at Citigroup Inc. in New York and with Lara’s 6.25 million estimate. America Movil ended the quarter with 242 million mobile-phone customers.

Profit margins in Mexico, before interest, tax, depreciation and amortization, fell to 48 percent from 51.3 percent a year earlier. Profit was hurt by a ruling last year by Mexico’s Federal Telecommunications Commission to cut the fees that America Movil could charge competitors to connect calls.

In Brazil, America Movil’s second-largest market behind Mexico, the operating margin fell to 22.8 percent from 24.7 percent. Brazil had the biggest net gain in the quarter among the 18 countries where America Movil operates, adding 2.9 million new subscribers.

The company’s shares rose 0.1 percent to 15.56 pesos yesterday in Mexico City before the results were announced. They have dropped 1.6 percent this year.

(America Movil plans to hold a conference call at 10 a.m. New York time. To listen, call +1-866-243-8959 from the U.S. or +1-703-639-1166 outside the U.S. and use the passcode 1566498.)

--Editors: John Lear, Stephen West

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net

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America Movil Falls as Costs Squeeze Profit: Mexico City Mover