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Rogers Communication (RCI) Up 5% Since Last Earnings Report: Can It Continue?

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In the latest trading session, ServiceNow (NOW) closed at $294.55, marking a -0.68% move from the previous day.

A month has gone by since the last earnings report for Rogers Communication (RCI). Shares have added about 5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Rogers Communication due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Wireless Growth Aids Rogers Communications’ Q4 Earnings

Rogers Communications reported adjusted earnings of 86 cents per share in fourth-quarter 2018 that beat the Zacks Consensus Estimate by a nickel. Moreover, total revenues of about $3 billion beat the consensus mark of $2.91 billion.

Adjusted earnings increased 10.8% year over year to C$1.13 per share. Total revenues climbed 5.5% to C$3.94 billion primarily driven by wireless service revenue growth.

Wireless Details

Wireless (62.6% of total revenues) increased 7.7% from the year-ago quarter to C$2.5 billion mainly due to growing demand for data and initiatives taken to retain subscriber base.

Service revenues climbed 4.8% to C$1.81 billion attributable to an increase in postpaid subscriber base and more number of customers choosing higher-priced plans. Equipment revenues were up 16.7% in the quarter to C$658 million due to higher hardware upgrades and growth in sale of higher value devices.

Monthly blended ARPU (average revenue per user) was C$55.91, up from C$54.95 in the year-ago quarter and monthly blended ABPU (average billings per user) was C$65.12, up from C$63.46 in the year-ago quarter

As of Dec 31, prepaid subscriber base totaled almost 1.63 million, a loss of 152K subscribers from the year-ago quarter. Monthly churn rate was 5.85% compared with 3.22% in the year-ago quarter.

As of Dec 31, postpaid wireless subscriber base totaled roughly 9.2 billion, a subscriber gain of 453K from the year-ago quarter. Monthly churn rate declined to 1.23% from 1.48% in the year-ago quarter. Higher subscriber base and lower churn rate was due to enhanced customer experience, increased digital adoption and improved quality of Rogers’ network.

Rogers Communications continues to invest in technology. The company partnered with Ericsson to bring 5G to its customers. Moreover, Rogers Communications entered into a strategic deal with University of British Columbia (UBC) to “build and test a real world 5G hub.”

Segment operating expense increased 9% from the year-ago quarter to C$1.45 billion due to higher device upgrades and investments in employees.

Adjusted EBITDA increased 7% year over year to C$1.03 billion. Adjusted EBITDA margin contracted 50 basis points (bps) on a year-over-year basis to 41.7%.

Cable Details

Cable (25.1% of total revenues) inched up 0.8% from the year-ago quarter to C$989 million primarily due to Internet revenue growth. Service revenues climbed 0.7% while equipment revenues surged 33.3% from the year-ago quarter.

Internet revenues increased 5.5% due to user shift toward higher-priced tiers and increase in subscriber base, partially offset by promotional activities. Rogers Communications currently offers 1 gigabyte speed to its user base. With the company’s Data Over Cable Service Interface Specification (DOCSIS) technology users will have access to up to 10 gigabytes per second speed.

Television and phone revenues declined 2.4% and 12.2%, respectively primarily due to promotional pricing.

As of Dec 31, 2018, Internet subscriber count was nearly 2.43 million, a gain of 109K from the year-ago quarter.

Management stated that Ignite TV, launched in August 2018, witnessed lower churn. The service was rolled out to Rogers Communications’ Ontario cable users. Notably, Ignite TV, integrated with sports app can be accessed on platforms like Netflix and Alphabet’s YouTube.

Rogers Communications lost 55K subscribers on a year-over-year basis to reach an installed base of almost 1.69 million in the Television segment. Phone subscriber count was nearly 1.12 million, a gain of 8K from the year-ago quarter.

Segment operating expense decreased 0.8% from the year-ago quarter to C$500 million.

Adjusted EBITDA increased 3% year over year to C$489 million. Adjusted EBITDA margin expanded 80 bps on a year-over-year basis to 49.4%.

Media Details

Media (13.7% of total revenues) increased 2.7% from the year-ago quarter to C$540 million due to higher advertising and sports-related revenues.

Segment operating expense increased 2% from the year-ago quarter to C$500 million due to higher programming costs.

Adjusted EBITDA increased 8% from the year-ago quarter to C$40 million due to cost efficiencies achieved by the company. Adjusted EBITDA margin expanded 40 bps on a year-over-year basis to 7.4%.

Consolidated Results

Operating costs increased 6.9% from the year-ago quarter to C$3.3 billion. As a percentage of revenues, operating costs expanded 100 basis points (bps) to 82.6%.

Adjusted EBITDA increased 6% from the year-ago quarter to C$1.52 billion. Adjusted EBITDA margin expanded 10 bps from the year-ago quarter to 38.6%.

Cash Flow Details

Cash provided by operating activities decreased 7.9% year over year to C$1.05 billion due to increased investments in working capital items and higher interest paid. Moreover, free cash flow increased 19.6% year over year to C$275 million on the back of higher adjusted EBITDA.

Rogers Communications paid C$247 million in dividends and ended the fourth quarter with a debt leverage ratio (adjusted net debt/adjusted EBITDA) of 2.5 compared with 2.7 in the year-ago quarter. The company paid an annual dividend of $2 per share, which increased 4.2%.

Guidance for 2019

Revenues are expected to increase in the range of 3. Capital expenditures are expected in the range of $2.85-$3.05 billion.

Adjusted EBITDA is expected to increase in the range of 7. Free cash flow is expected in the range $200-$300 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

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