UPDATE 2-Profit at Telefonica Brasil doubles on accounting change

Wed Jul 30, 2014 11:30am EDT

(Adds details from conference call on accounting effect, investment plans)

By Brad Haynes

SAO PAULO, July 30 (Reuters) - Telefonica Brasil SA , which controls the country's largest wireless carrier, doubled its second-quarter profit on accounting changes, but sales and operating profit continued to stagnate due to economic headwinds and World Cup holidays.

The Brazilian unit of Telefonica SA reported net income of 1.993 billion reais ($894 million) for the quarter, up 118 percent from a year earlier, according to a Wednesday filing.

But the profit figure was lifted by a one-time accounting impact of 1.2 billion reais, the result of a new corporate tax code that changed how Telefonica Brasil booked goodwill from a recent merger, executives said on a call with analysts.

Without that boost, profit was in line with the 783 million reais average forecast of analysts surveyed by Reuters, down around 10 percent from a year earlier.

High inflation and weak jobs growth has battered consumer confidence over the past year, sapping household demand even for less discretionary spending such as telephone services. The month-long World Cup, which started in mid June, also brought several host cities to a standstill on game days, reducing telephone traffic, especially for corporate clients.

Net revenue edged up less than 2 percent as a drop in fixed-line sales nearly wiped out wireless growth. Operating costs rose nearly 3 percent, driven by personnel and sales efforts.

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, slipped 1 percent to 2.546 billion reais, in line with expectations of 2.563 billion reais.

Telefonica Brasil is holding its 2014 capital spending target at about 18-19 percent of net revenue, a senior executive, Paulo Cesar Teixeira, told analysts on the earnings call.

Capital spending rose 29 percent in the quarter from a year earlier to 1.615 billion reais ($720 million), or 18.7 percent of net revenue. First-quarter investments were 1.001 billion reais, or 11.6 percent of net revenue. ($1=2.23 Brazilian reais) (Additional reporting by Alberto Alerigi Jr.; Editing by Jeffrey Benkoe, Nick Zieminskia and Peter Galloway)

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