Rogers Communications Outperforms

Zacks

Rogers Communications Inc. (RCI) declared strong financial results for the third quarter of 2012, easily beating the Zacks Consensus Estimates. Quarterly net income was $468 million or 90 cents per share compared with a net income of $493 million or 87 cents per share in the year-ago quarter.

However, third-quarter adjusted (excluding special items) earnings per share of 97 cents were miles ahead the Zacks Consensus Estimate of 89 cents. Quarterly total revenue was $3,189 million, up 1% year over year, handily beating the Zacks Consensus Estimate of $3,085 million.

Third quarter adjusted operating profit was $1,293.4 million, up 5% year over year. Quarterly adjusted operating margin was 40.6% compared with 39.2% in the year-ago quarter.

During the third quarter of 2012, Rogers Communications generated $1,146 million of cash from operations compared with $1,128 million in the year-ago quarter. Free cash flow during the reported quarter was $618 million compared with $569 million in the year-ago quarter.

At the end of the third quarter of 2012, Rogers Communications had $1,904 million of cash and marketable securities on its balance sheet compared with $1,107 million at the end of 2011. Total outstanding debt, at the end of the reported quarter, was $10,736 million compared with $9,833 million at the end of 2011. At the end of the third quarter of 2012, debt-to-capitalization ratio was 0.74 compared with 0.74 at the end of 2011.

Wireless Segment

Quarterly total revenue was $1,897 million, up 3% year over year. Network revenue was $1,751.3 million, up 2% year over year. Equipment sales were $145.6 million, up 16% year over year. Quarterly adjusted operating profit for the segment was $846.5 million, up 3% year over year.

Adjusted operating margin was 48.3% in the reported quarter compared with 47.7% in the year-ago quarter. In the third quarter of 2012, wireless Data revenue was $722million, up 18% year over year. Wireless Data revenue represented around 41% of total wireless network revenue compared with 36% in the prior-year quarter.

During the third quarter of 2012, wireless segment activated 707,000 smartphones, up 16.1% year over year. Most of these smartphones are either iPhone of Apple Inc. (AAPL), BlackBerry of Research In Motion Ltd. (RIMM) or Google Inc. (GOOG) developed Andriod-based handsets. Of the total smartphones, around 36% were new subscribers. Quarterly consolidated ARPU (average revenue per user) was $62.2, up 0.2% year over year.

On September 30, 2012, Postpaid retail subscribers’ base was around 7.788 million, up 3.4% year over year. Smartphone customers now constitute 65% of overall Postpaid subscribers compared with 52% in the year-ago quarter. Quarterly Postpaid ARPU was $71.8, down 0.8% year over year.

Monthly churn rate was 1.34% compared with 1.36% in the prior-year quarter. Prepaid subscribers’ base was around 1.644 million, down 6.4% year over year. Quarterly Prepaid ARPU was $16.8, up 0.06% year over year. Monthly churn rate was 3.77% compared with 3.37% in the prior-year quarter.

Cable Segment

Quarterly total revenue was $841.5 million, up 1% year over year. Basic cable operations revenue was $472 million, down 1% year over year. Internet revenue was $250 million, up 7% year over year. Home Telephony revenue was $119.5 million, remaining same year over year.

Quarterly adjusted operating profit for the whole segment was $404.7 million, up 10% year over year. Adjusted operating margin was 48.1% in the reported quarter compared with 44.4% in the year-ago quarter.

On September 30, 2012, Cable TV subscribers’ base was around 2.239 million, down 2.8% year over year. High-speed Internet subscribers’ base was 1.844 million, up 4.3% year over year. Digital cable terminal base was 1.776 million, up 0.5% year over year. Cable Telephony lines were 1.065 million, up 2% year over year.

Media Segment

Quarterly total revenue was $393.7 million, down 4% year over year. Quarterly adjusted operating profit was $50.2 million, down 9% year over year. Adjusted operating margin was 12.8% in the reported quarter compared with 13.5% in the year-ago quarter.

Our Recommendation

We maintain our Outperform recommendation on Rogers Communications. Currently, the company has a short-term Zacks #2 Rank (Buy).

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