Is The Glass Half Full Or Half Empty In Latin America?

Includes: AMX, GML
by: Emerging Money

By Richard Rittorno

Is Latin America (NYSEARCA:GML) on the mend? Earnings season can be a tough time trading for anyone looking at short-term positions. But for emerging market investors, it can be time to gain insight into emerging market economies.

One such earnings report shedding light on Latin America is Mexican telecommunications company America Movil de CV (NYSE:AMX). When AMX reported yesterday, it said that its revenue increase (1.6%) was greatly helped by an improving economy in Latin America beating expectations. AMX reported a net profit of 14.2 billion pesos, or roughly $1.1 billion USD in the second quarter of this year ($0.31 per share for ADRs traded on U.S. exchanges). That was a 7.9% increase quarter over quarter with EBITDA of 2.1%.

In AMX's earnings release, the company highlighted that the U.S. economy appears to be approving along with the pick-up in Latin America. It goes on to point out that markets being concerned about a reduction in U.S. bond purchases by the U.S. Federal Reserve created weaker currencies in Latin America, which helped its service revenue climb by 7.8%.

AMX provides us a broad look into consumers in 18 countries across the Americas, where it increased its subscriber base by 1.6 million. It also reported that it had a reduction of 867K in wireless subscribers by disconnecting inactive consumers. The reduction was primarily in Peru and Ecuador, suggesting it's best to take a deeper look at their economies before jumping into these emerging markets.

Although AMX's earnings seem to be improving on the surface, we see AMX's debt-to-total-capital ratio as being calculated at 61.97%. The debit ratio seems high, but it is in line with the wireless telecommunication services sector norm. Its quick ratio comes in at 0.67, which means there are not enough liquid assets to satisfy current debt levels if operating earnings were to fall off.

Bottom line: AMX is not a name I'm looking to jump into, but I do find its increased revenue in Latin America an area to dig deeper into over the weekend.