Orange (NYSE:ORAN), the wireless networks operator formerly known as France Telecom, reported results for the second quarter and first half of 2015 Tuesday morning. The results exceeded analyst expectations, helped by strong mobile subscriber additions.
In the first half, sales fell 0.6% year-over-year to land at $21.6 billion. Orange's largest markets, such as France, Spain, and Poland, saw significant declines. Modest gains in Africa and the Middle East helped reduce the impact of losses in continental Europe. Orange's portfolio of shared networks and joint ventures in the developing world posted 7% higher sales.
On the bottom line, Orange saw first-half earnings of $0.43 per diluted share, up from $0.23 per share in the year-ago period. I'm assuming constant dollar-to-euro exchange rates here -- more on that later.
Eighteen cents of the second-quarter EPS result came from Everything Everywhere, a British telecom that Orange ran as a joint venture with Deutsche Telekom. Deutsche and Orange are in the process of selling that operation to London-based telecom BT Group, so EE's results are classified as "discontinued operations" until that transaction closes. Currently, the parties hope to seal the deal by the spring of 2016.
Teasing out a single quarter from these larger figures, Orange's second-quarter sales held steady at $10.9 billion. EBITDA earnings, which exclude the impact of interest, taxes, depreciation, and amortization, stopped at $3.6 billion. Analysts were expecting EBITDA of $3.5 billion on $10.8 billion in total sales, so Orange exceeded both estimates by a small margin.
Comparing profits year-over-year is a tricky business, given the rapid rise of the U.S. dollar versus the euro. In the second quarter of 2014, Orange reported EBITDA of $4.2 billion. However, at today's exchange rates, the same year-ago result only amounts to $3.5 billion. Orange's EBITDA profits rose 3% year-over-year in constant currency, but fell 14% using historical exchange rates.
Remember how Orange reported $0.23 of earnings per share a year ago? Well, that was in constant currency. Using exchange rates from last summer, Orange actually earned $0.31 per share at the time.
Orange added 1.6 million net new mobile customers in the second quarter, including 1.0 million contract subscribers and 600,000 prepaid accounts. Overall, Orange now serves 189.8 million mobile subscribers worldwide, and 65% of them are locked into contract subscriptions. The fixed broadband is growing far slower, with just 73,000 new contracts in the second quarter. Twenty-one thousand of these also subscribe to Orange's satellite or Internet-based TV services.
The company is busy picking up small plug-in networks by acquisition, while also unloading operations that no longer make sense. With this hands-on approach to asset management, the company aims to keep its net debt balance to about twice its annual EBITDA profits. Currently, that ratio stands at 2.13.
"We delivered a very good commercial performance especially in France, Belgium, Romania and throughout the Africa and Middle East region," said Orange CEO Stephane Richard in a press statement. "Combined with the continued reduction of our cost structure, this performance has enabled us to stabilize our margin in the first half, excluding regulatory impacts, and even show slight growth in the second quarter. We therefore fully confirm all our financial objectives for 2015."