Telecom New Zealand
The company reported a 7.8% increase in earnings from continuing operations year over year. While revenue was flat at $1 billion, expenses actually rose 2.3% to $628 million. Telecom NZ was only able to turn in the higher earnings thanks to lower interest, tax, depreciation, and amortization costs. Management cited shifts in revenue away from its traditional calling business, and growth in wireless, as sources of negative pressure on operating margins.
The continued pressure on profitable operations across the company is only one of the issues facing Telecom NZ; key decisions on the company's reorganization and an announcement on the replacement of outgoing CEO Theresa Gattung remain pending. The company has been playing political football with government regulators in New Zealand over efforts to open up Telecom NZ's network to competition, with considerable disagreement remaining between the company and the government about the best path forward.
Telecom NZ has shown that it doesn't hold a stodgy, monopolistic mindset. As it proved by taking on Vodafone
In addition, Telecom NZ recently sold its Yellow Pages business to a private equity consortium, a deal that will net the company $1.6 billion. While some shareholders were hoping for a one-time dividend from the proceeds, the company wants to return value from this deal to shareholders by canceling $812 million worth of shares. These efforts help make up for the pressure on margins and the company's looming uncertainties. Given Telecom NZ's 6.5% dividend yield, the wait to see how its regulatory issues shake out could be a lot worse.
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Fool contributor Dave Mock likes kiwi, strange looks and all. He owns no shares of companies mentioned here. Vodafone is an Inside Value recommendation. Dave is the author of The Qualcomm Equation. The Fool has a disclosure policy.