On Tuesday, Vodafone (link will open in a new window) reported key performance indicators for its first fiscal quarter, ending June. While the results were in line with our expectations, revenue benefited from a weakening of the British pound against the euro. The firm reduced its revenue forecast for the rest of the year. Without the currency benefit, European revenue declined slightly. The most disconcerting point was the weakness in Spain. Historically, telephone companies are fairly resilient to economic fluctuations, and we were surprised to see such a rapid drop in Spain in response to its economic weakness. We are putting Vodafone under review while we revisit our model and evaluate the potential effect on the firm's results if Europe goes into a recession and the industry turns out to not be as defensive as we've previously assumed.
Allan C. Nichols, CFA
is a fund analyst at Morningstar.
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