--America Movil shares down after drop in second-quarter net profit

--Currency weakness cause of exchange loss, pressure on equipment costs

--Brazilian slowdown intensifies competition in region's biggest economy

(Updates with overall market performance in paragraphs 1 and 3)

By Anthony Harrup

MEXICO CITY--Shares of America Movil SAB (AMX, AMX.MX) underperformed Friday, closing modestly lower after foreign-exchange losses led to a drop in second-quarter profit and the slowdown in Brazil affected the Mexican telecommunications heavyweight's results in Latin America's biggest economy.

Late Thursday, the phone company of billionaire Carlos Slim reported a 45% decline in net profit to 13.3 billion pesos ($1 billion). Weaker currencies in Mexico and elsewhere in Latin America led to MXN16.1 billion in exchange losses, and pushed up the cost of subsidizing handsets amid a growing preference among customers for smartphones.

The results drew mixed reviews from analysts and disapproval from investors. America Movil L shares closed down 0.2% at MXN17.99 on the Mexican stock exchange, after being down as much as 2.6% early in the session. The market's benchmark IPC index rose 1.2% to a record high close of 41,476 points.

Barclays kept its overweight rating on America Movil despite the bottom-line miss, considering that the company is "moving in the right direction to resume its earnings growth in the next few quarters." Citigroup unit Banamex reiterated its buy rating, calling the results good in Mexico but disappointing in Brazil. Banorte-Ixe cut the shares to hold from buy and lowered its target price slightly to MXN19.

"It's feasible that this pressure will continue given the weak economic outlook and greater competition among operators," Banorte-Ixe said, adding that it's concerned about the lower profitability in Brazil.

America Movil Chief Executive Daniel Hajj, in a conference call with analysts, said the increasing use of smartphones, and the cost of subsidizing them for postpaid customers, was a source of pressure on margins.

In Brazil, the only significant market where wireless average revenue per user fell, "the economy has been slowing down and competition has been very tough," he said.

Mr. Hajj reiterated America Movil's expectations of making capital expenditures of $10 billion a year in the 2011-2013 period.

Wireless subscriber growth was similar in Brazil and Mexico, Latin America's two biggest economies, with America Movil adding 1.4 million subscribers in each in the second quarter. Overall, the company added 5.9 million wireless subscribers to 251.8 million, and 1.7 million fixed-line accesses to 61.2 million.

While Mexico held up better than Brazil in wireless, in fixed-line Brazil outperformed Mexico thanks to strong growth in broadband and pay-television revenue, which rose 29% and 27% respectively. In Mexico, where unit Telmex is still barred from offering television, fixed-line revenue fell 4.5% led by the decline in voice revenue.

-Write to Anthony Harrup at anthony.harrup@dowjones.com

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