Telmex Shares Take Big Fall on Profit Report

Bad day at the Bolsa: Shares of Telefonos de Mexico, Mexico’s largest telephone company, Wednesday suffered their biggest one-day plunge since the 1997 Asian financial crisis after the company reported second-quarter profit below estimates.

Telmex, whose shares account for almost a third of Mexico’s IPC stock index, said late Tuesday that second-quarter operating profit fell 3% on higher costs and falling sales from international long-distance calls.

The stock plunged Wednesday in Mexico City, dragging the U.S.-traded shares (TMX) down $6.44, or 10%, to $56.19 on the NYSE.

The IPC index, which was pumped up after the recent election of conservative Vicente Fox as Mexico’s president, has slid 353.31 points, or 4.9%, to 6,863.27.

Telmex’s “results did not meet the market’s and our expectations at the operating and net level,” said Sumant Vasal, a telecommunications analyst at Afin Securities International Ltd.

Telmex’s second-quarter profit before taxes, interest expenses and other items fell to 9.46 billion pesos (about $1 billion) from 9.75 billion a year earlier. Analysts had expected a 6.5% rise in operating profit, according to a Bloomberg News survey of five analysts.

This is the first time in two years that Telmex missed analysts’ expectations. Its profit also failed to grow for the first time since the first quarter of 1999, when it declined 7.6%.

Analysts said Telmex, which is controlled by Carlos Slim, Latin America’s wealthiest businessman, faced rising expenses as it expanded its cellular and international operations.

“The main reasons for the increased expenses are higher commissions, handsets costs and wages expense associated with [cellular’s] growth,” said Luiz Carvalho, a telecommunications analyst at Morgan Stanley Dean Witter, in a report.

“We believe that costs will remain high as Telmex continues its aggressive growth both within and outside of Mexico,” Carvalho said.

Telmex also is facing competition at home from Alestra, the Mexican unit of AT&T; Corp., and Avantel, a subsidiary of WorldCom. The competition is forcing the company to keep long-distance telephone rates unchanged.