Telefonica SA, Europe’s second- largest phone company, said first-quarter profit climbed 9.8 percent as it added more Latin American customers.

Net income rose to 1.69 billion euros ($2.31 billion) from 1.54 billion euros a year earlier, Madrid-based Telefonica said today in a regulatory filing. Analysts had predicted a 1.66 billion-euro profit, the median of nine estimates in a Bloomberg News survey. Sales fell 1.4 percent to 13.7 billion euros.

Chairman Cesar Alierta is counting on Latin America to generate growth as the company’s operations in Europe stumble with shrinking economies. The executive in January boosted the company’s dividend 15 percent to attract investors.

Operating income before interest, tax, depreciation and amortization slipped 0.4 percent to 5.35 billion euros. Analysts had predicted Oibda of 5.34 billion euros on sales of 13.74 billion euros, according to the survey.

Before today, Telefonica had dropped 6.4 percent in Madrid trading this year, less than the 9.1 percent decline in the Bloomberg Europe Telecommunication Services Index.

The company repeated its 2009 goals of increasing operating cash flow by 8 percent to 11 percent, boosting sales and generating 1 percent to 3 percent growth in Oibda. The objectives were first announced in February.

Net sales from Telefonica’s Spanish division dropped 4.2 percent to 4.9 billion euros, while revenue elsewhere in Europe decreased 6.6 percent to 3.2 billion euros. Sales at its Latin American unit climbed 4.8 percent to 5.4 billion euros.

Telefonica in January said it will boost its 2009 dividend to 1.15 euros a share from 1 euro out of 2008 earnings.

Source:Bloomberg