Deutsche Telekom Profit Rises on U.S. Growth

(Bloomberg) --

Deutsche Telekom AG posted higher operating profit in the first quarter, propelled by forecast-beating U.S. growth that’s making up for slower momentum back home in Germany, where Europe’s biggest phone company faces emerging competitive threats.

• Adjusted earnings before interest, tax, depreciation and amortization after leases grew 8.3% to 5.94 billion euros ($6.65 billion). The figure, which eliminates accounting changes related to leases, was slightly below the average forecast of 5.97 billion euros in a company-compiled survey of analysts.
• The company confirmed its outlook for the year. It expects adjusted Ebitda AL of about 23.9 billion euros and free cash flow AL of about 6.7 billion euros.

Key Insights

• U.S. unit T-Mobile has beaten earnings estimates for 13 straight quarters, supporting the German parent company’s argument that the business will still prosper even if regulators block its $26.5 billion takeover of U.S. rival Sprint Corp. Raymond James analysts cut the chances for approval to 55 percent from 80 percent last week.
• Back home, a four-way bidding war for fifth-generation mobile spectrum threatens to inflate Deutsche Telekom’s capital spending burden in coming years.
• The Bonn-based company faces renewed competitive pressure in Germany, where it lost contract and fixed-network customers compared to the previous three months.
• Revenue in its home country grew only slightly to 5.36 billion euros over the prior-year period. Vodafone this week offered Telefonica wholesale access to its entire German cable network, while Drillisch is threatening to build a fourth national 5G network.

Market Context

• Deutsche Telekom shares rose 0.5% in early trading in Frankfurt. The stock is up 1.3% this year, while the wider Stoxx Europe Telecommunications index is about flat.

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• Sales and operating profit rose at its European units, bolstered by an increase in contract and fixed-network customers.
• Sales at the T-Systems unit fell 2.1 percent to 1.63 billion euros. The company cited a "general decline" in IT business in western Europe and the termination of unprofitable contracts for the drop.
• Company statement here

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