(Updates with share reaction starting in second paragraph.)
Nov. 10 (Bloomberg) -- Deutsche Telekom AG, Europe’s largest telephone company, reported profit that beat analysts’ estimates after cost cuts increased profitability in Germany and the T-Mobile USA wireless business added customers.
The shares rose as much as 2.4 percent in Frankfurt, the biggest winner on Germany’s DAX Index. Third-quarter adjusted earnings before interest, taxes, depreciation and amortization reached 4.9 billion euros ($6.7 billion), exceeding the 4.7 billion-euro average estimate of 11 analysts. Net income climbed 15 percent to 1.07 billion euros, the Bonn-based company said.
The former phone monopoly, which confirmed its full-year forecasts today, is using surging Web traffic over mobile phones and products such as television packages to make up for falling revenue from traditional landlines. Deutsche Telekom pushed its ratio of Ebitda to sales in Germany to a record 41.5 percent last quarter, after taking out 1.5 billion euros in expenses in the first nine months.
“The market is going to be happy that they confirmed their guidance, that’s the main thing people were worried about,” said Wolfgang Specht, an analyst at WestLB AG in Dusseldorf with an “add” recommendation on the stock.
Deutsche Telekom jumped as much as 20.9 cents to 9 euros. They traded 2.4 percent higher at 8.99 euros as of 9:58 a.m., while the DAX was down 0.4 percent.
In the U.S., Deutsche Telekom is fighting a U.S. government lawsuit against the proposed $39 billion sale of the T-Mobile USA unit to AT&T Inc. The business lost 186,000 contract customers, better than the average estimate of a reduction of 253,000 clients. Including prepaid plans, the units increased client numbers for the first time in a year.
Chief Executive Officer Rene Obermann said on a conference call that he’s “still very optimistic” that the sale will go ahead in the first half of 2012. The disposal is “positive” for the U.S. wireless market and consumers, he said.
Deutsche Telekom reiterated today that 2011 adjusted Ebitda will be about 14.9 billion euros excluding T-Mobile USA, while earnings for that unit will be about $5.5 billion. The company still projects free cash flow of at least 6.5 billion euros.
Third-quarter revenue decreased 6 percent to 14.7 billion euros, in line with analyst estimates.
The German government, which owns about 32 percent of Deutsche Telekom, said yesterday it may accelerate a plan to dispose of the shares after agreeing to acquire a stake in European Aeronautic Defence and Space Co. from Daimler AG.
The German unit added 466,000 wireless contract customers in the quarter, more than all net additions in the 10 previous quarters taken together, as it offered new call and data plans.
Still, some of Deutsche Telekom’s growth areas have been slowing recently. Domestic competition from cable providers such as Kabel Deutschland Holding AG is limiting the operator’s expansion in the broadband and TV business. Selling phone connections and other products may become harder in coming quarters as European Central Bank President Mario Draghi said last week that the euro-zone economy may dip into recession toward the end of the year.
Deutsche Telekom started a three-year 4.2 billion-euro cost cutting program in 2010. By the end of the third quarter, the company has shrunk its annual cost base by 3.9 billion euros. Deutsche Telekom plans additional spending cuts by unifying its information-technology structure over three to four years, people familiar with the plan said last month.
“The German cost cuts are really working and they seem to be strengthening their business position there as well,” said Jan Goehmann, an analyst at Norddeutsche Landesbank Girozentrale who advises buying the shares . “Ideally they’d be able to transpose that model to Europe, but the gloomy macroeconomic environment will make that difficult.”
The European unit excluding Germany, led by former McKinsey & Co. consultant Claudia Nemat since October, is aiming to resume revenue growth even as austerity measures brought on by the European debt crisis pare consumer spending. Profit and earnings declines slowed in the third quarter in markets including Greece as cost reductions took effect, Deutsche Telekom said today.
Vodafone Group Plc, the world’s biggest wireless operator whose German unit competes in Deutsche Telekom’s home market, this week raised its full-year forecast after beating analyst estimates on improved sales in India and on tiered data tariffs.
--Editors: Kenneth Wong, Simon Thiel
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