By Margit Feher

BUDAPEST--Magyar Telekom Nyrt.'s (MTELEKOM.BU) said Tuesday that its first-quarter earnings beat expectations on sharply falling direct costs related to its exit from the natural gas distribution business.

The company's net profit was 10.72 billion forints ($39.5 million) in the January to March period, up from HUF2.51 billion a year earlier and exceeding the average forecast of HUF7.7 billion by analysts polled by the company.

Direct costs fell by 21% to HUF45.4 billion, mostly as a result of the exit from the residential and business-to-business gas supply market.

Magyar Telekom, Hungary's largest telecom company by market share, booked a one-off profit of HUF5.1 billion in the first quarter on the sale of real estate and online news service Origo. That gain was in line with analysts' expectations.

First-quarter performance was also in line with the company's expectations, including the windfall, Chief Executive Christopher Mattheisen said in a filing with the Budapest Stock Exchange. As a result, the company maintained its full-year guidance for revenue, earnings before interest, taxes, depreciation and amortization, and its plan to raise its dividend payment to HUF25 a share on its 2016 earnings, from HUF15 a share on its 2015 earnings.

First-quarter revenues at the company, in which Deutsche Telekom AG (DTE.XE) has a 59.3% stake, fell 7.6% to HUF145.05 billion, primarily as a result of the gas business exit. Revenue at the company's Macedonian unit rose after a five-year decline.

Ebitda, a key indicator of profitability in the telecommunications sector, rose 14% to HUF48.25 billion as a result of the one-off gains, beating analysts' forecast for HUF47.5 billion. The Ebitda margin, which analysts also watch closely, was 33.3%, up from 27.1% a year earlier.

Free cash flow increased by HUF11.2 billion despite severance payments and debt repayment. Net debt to total equity improved--falling to 41.8% from 42.9% at the end of last year.

Write to Margit Feher at margit.feher@wsj.com; Twitter: @margitfeher

(END) Dow Jones Newswires

May 03, 2016 13:12 ET (17:12 GMT)