TEF Telefonica SA

MADRID—Spanish telecommunications giant Telefó nica SA said second-quarter net profit fell by more than half from a year earlier on lower revenue and currency fluctuations.

The Madrid-based company said Thursday that net profit was €693 million ($766.46 million) in the quarter versus €1.52 billion a year earlier. The company said a decline in the currencies of Brazil, Argentina and the U.K. versus the euro, as well as other currency fluctuations, had shaved 9.1 percentage points off revenue in the second quarter.

Revenue in the quarter was €12.72 billion, a 7.7% decline from a year earlier. Operating income excluding depreciation and amortization was €3.92 billion, a 7.1% drop.

Telefó nica reiterated its targets with a dividend of €0.75 euros a share for 2016 because of what the company said was an expected improvement in cash flow in the second half of the year.

While the Argentine peso and the Brazilian real, for instance, have been a drag on earnings and Telefó nica's share price, Latin American currencies are bouncing back because of an increase in commodity prices, more market-friendly governments and an expected delay in a U.S. rate rise after Britons voted to leave the European Union, said Javier Borrachero, a telecommunications analyst at Kepler Cheuvreux. That has brightened the company's outlook, he said.

Net debt increased €1.98 billion to €52.5 billion in the second quarter versus the first three months of the year. Investors and analysts are eager to see Telefó nica whittle down its massive debt load to avoid a credit-rating downgrade.

To reduce debt, the company had tried to sell its British mobile operator O2, but that deal was blocked by the European Commission, which said it would have resulted in higher prices and fewer choices for U.K. customers. After the U.K. referendum in support of Brexit, Telefó nica said it would consolidate O2 back into its financial statements.

"Telefó nica should establish its deleveraging road map as soon as possible, combining it with a credible and sustainable dividend policy that would restore investor confidence," Mr. Borrachero wrote in a July 11 research report.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

(END) Dow Jones Newswires

July 28, 2016 03:25 ET (07:25 GMT)

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