By Kate Holton

LONDON - Recession in southern Europe and retrenchment in the financial services sector hit British telecoms firm BT in the first quarter of its financial year, leading it to miss revenue forecasts and sending its shares tumbling on Wednesday.

Britain's biggest fixed-line telecoms company had to rely on deep cost cuts to lift core earnings 2 percent after a poor performance at its corporate division sent overall revenues down 6 percent in the three months ended June.

“Companies that are selling globally are doing reasonably well still but particularly domestic companies that are reliant on their own domestic markets, across Europe, are finding things more difficult,” Chief Executive Ian Livingston told reporters.

“It just takes longer for decisions to be made about contracts and contracts tend to be smaller sized”.

At 0755 GMT, BT shares were down 4.6 percent at 207.5 pence, the second-biggest fall by a European blue-chip stock.

BT also missed forecasts for normalised cash flow, with an outflow of 124 million pounds.

But the former state monopoly said its outlook for the year remained unchanged, after cost cuts helped the group to lift adjusted profit before tax up 8 percent and earnings per share by 10 percent.

“They're a mixed bag,” said Will Draper, an analyst at Espirito Santo, commenting on the results. “The revenues are soft and free cash flow is a miss but core earnings are in line and they've reiterated their guidance so that is reassuring.”

The results follow a previously solid performance for BT after it hiked its dividend and promised a share buyback in May.

In the three months to the end of June, however, revenue for its Global Services corporate division was down 9 percent, while core earnings within the division fell 14 percent.

BT said the outlook for 2013 remained unchanged, forecasting an improving trend in underlying revenue excluding transit fees and growth in adjusted core earnings.

Revenues for the quarter were down 3.2 percent when excluding transit fees, which BT gets paid for carrying the traffic of other operators.

The group said it expected a decline in this metric to get worse in the second quarter compared with the first, before improving in the second half. - Reuters

($1 = 0.6441 British pounds)