America Movil Earnings: Solid Mexican Results Balance Out Weakness Elsewhere

The Mexican peso’s strength continues to weigh on America Movil AMX. Total service revenue for the first quarter declined 2.2% year over year but would have increased about 6% excluding currency movements. The Mexican business (nearly 40% of consolidated revenue) produced solid results while Colombia remains challenging. We are maintaining our fair value estimate at $21 per ADR and view the shares as fairly valued.

The Colombian business has struggled for several quarters against both increased competition and currency pressure. While it remains Movil’s third-largest Latin American operation, we estimate Colombian revenue declined 25% in Mexican peso terms year over year and now only accounts for about 7% of consolidated revenue. Movil continues to attract new Colombian wireless customers, with 518,000 net additions during the quarter. But revenue per customer has declined precipitously, falling 4% versus a year ago to COP 15,329 per month, the lowest mark in more than a decade. This market is ripe for consolidation, though Movil is unlikely to take the lead given it is still the largest service provider in Colombia.

Conversely, Mexican wireless service revenue increased 8.1% versus a year ago. Customer growth slowed during the quarter, with only 131,000 net additions, but revenue per customer increased more than 5% year over year to MXN 170 per month, down sequentially but still near decade highs. Movil also added 139,000 net broadband customers during the quarter, its best showing in four years despite stiff competition. Nearly 70% of the firm’s broadband customers are on its fiber network, up from 53% a year ago. Fixed-line service revenue rebounded from a disappointing fourth quarter, increasing 4% year over year. The EBITDA margin in Mexico slipped to 41% from 42% last year, which management attributed primarily to higher equipment and phone sales, which carry low margins.