Telefonica Profit Rises to Record on TPI Gain, O2 (Update2) By Paul TobinNov. 14 (Bloomberg) -- Telefonica SA, Europe's second- largest phone company by market value, said third-quarter profit rose to a record on one-time gains from the sale of a unit and the takeover of U.K. mobile-phone operator O2 Plc. Net income rose to 2.61 billion euros ($3.35 billion) from 1.42 billion euros a year earlier, the company said today in a statement. Sales climbed 37 percent to 13.54 billion euros and the company raised its full-year revenue growth forecast. Chairman Cesar Alierta sold Telefonica's controlling stake in Telefonica Publicidad e Informacion SA to raise funds after the 17.7 billion-pound ($33.7 billion) purchase of O2. The takeover fueled revenue growth as competition intensified at home and sales from traditional phone services shrank. ``It's a solid set of earnings and clearly better than what its peers are showing,'' said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages the equivalent of $9.4 billion, including Telefonica shares. Operating income before depreciation and amortization, or Oibda, advanced to 5.41 billion euros from 4.22 billion euros a year earlier. Telefonica was expected to say Oibda reached 5.21 billion euros on sales of 13.47 billion euros, according to nine analysts surveyed by Bloomberg News. Net income missed analysts' estimates for the first time in seven quarters. The median net income estimate in the survey was 3 billion euros. Before today, Telefonica shares had gained 21 percent this year, beating the 9.3 percent gain in the Bloomberg Europe Telecommunications Services Index. Raised Forecast Vodafone Group Plc, the world's largest mobile-phone company, reported today a first-half net loss of 5.1 billion pounds ($9.7 billion) after it wrote down the value of the German and Italian units. Deutsche Telekom AG, Europe's largest former phone monopoly by sales, said Nov. 9 third-quarter profit dropped 20 percent as wireless earnings fell and the loss of fixed-line customers accelerated. Telefonica today said it expects full-year sales to grow more than 37 percent, compared with a range of 34 percent to 37 percent previously projected. Oibda growth is expected to be in the high end of its range of 26 percent to 29 percent. The company said in July it had a capital gain of 1.58 billion euros from the sale of its 59.9 percent stake in Yellow Pages publisher TPI to Yell Group Plc. U.K. Expansion The O2 deal was the largest involving a European phone company since May 2000, when Paris-based France Telecom SA agreed to buy Orange Plc from Vodafone Group Plc for $41.7 billion, according to Bloomberg data. Telefonica's debt ballooned to 52.2 billion euros in September following the O2 purchase from 30 billion euros in December. Standard & Poor's cut Telefonica's credit rating to BBB+ from A- in January, in line with Moody's Investors Service's Baa1 grade. The rating is the third-lowest investment grade and the lowest-ever for Telefonica. Alierta has said that those are ``floor'' credit ratings for the company. While Alierta has pledged not to make significant takeovers until after 2007, he's still focusing on transactions. The company agreed on Nov. 12 to buy 8 percent of PCCW Ltd., Hong Kong's biggest phone company, for 323 million euros. On May 26, Alierta said 2009 dividends and earnings will double from 2005 levels, when the payout was set at 50 euro cents and profit was 91 cents a share. He committed not to spend more than 1.5 billion euros or create new shares to pay for ``new net'' acquisitions until the end of 2007. The company also said it will spend 2.7 billion euros to buy back and cancel stock through the end of 2007. To contact the reporter on this story: Paul Tobin in Madrid at ptobin@bloomberg.net Last Updated: November 14, 2006 02:39 EST