CORRECTED-Italy's TIM Q1 core earnings drop on coronavirus hit

(Corrects headline and lead to remove reference to EBITDA guidance being confirmed)

MILAN, May 18 (Reuters) - Telecom Italia (TIM) on Monday reported a drop in first-quarter core earnings after cost cuts failed to fully offset a slump in domestic revenue caused by the coronavirus pandemic.

Italy’s biggest phone group said on Monday its organic earnings before interest, tax, depreciation and amortization (EBITDA) fell 7.5% in the January-March period from a year earlier to 1.8 billion euros.

That was broadly in line with an analyst consensus provided by the company of 1.78 billion euros. Organic EBITDA strips out one-off items and currency effects.

Total revenues fell 8.4% year-on-year on an organic basis to 3.96 billion euros, hit by a drop in domestic sales due to lockdown measures imposed by the government to curb a coronavirus outbreak which emerged at the end of February.

Domestic revenue fell 11.3% to 3.11 billion euros in the first quarter, hit by stiffer competition in the mobile business coupled with the effects of shop closures and reduced roaming traffic. Analysts had a consensus forecast of 3.18 billion euros.

“However, in contrast to a short-term downturn, the medium-long term outlook is positive”, TIM said in a statement.

The former monopoly, whose investors include France’s Vivendi and investment firm Elliott, said it was able to confirm its 2020 EBITDA-capex ratio forecast and a cumulated equity free cash flow target of 4.5-5 billion through 2022.

The company confirmed its financial guidance for 2021-2022 but made no reference to its 2020 core profit target, leading analysts to say that this year’s EBITDA guidance had been dropped.

Asked whether analyst notes were correct on this point, TIM said it had nothing to add to what it had said in the earnings statement.

In the three months through March operating free cash flow rose by 14% to 788 million euros, due to cost cuts and the optimization of working capital management, TIM said.

Net financial debt as of March 31 stood at 26.7 billion euros, down by 923 million euros from three months earlier.

TIM said it had granted a consortium led by French investment firm Ardian an exclusivity period to discuss the possible sale of a minority stake in a holding company where TIM plans to transfer its 33.2 stake in Italy’s biggest mobile tower company INWIT.

TIM, which is also in talks with investment firm KKR over the sale of a minority stake in its last mile network, said its target for debt reduction over the plan’s period could improve further thanks to the possible sale of part of its INWIT stake.

Reporting by Elvira Pollina; Editing by Giles Elgood