A month has gone by since the last earnings report for Rogers Communication (RCI). Shares have lost about 0.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Rogers Communication due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Lower Wireless & Media Revenues Hurt Rogers Q1 Earnings
Rogers Communications reported adjusted earnings of 59 cents per share for first-quarter 2019, which missed the Zacks Consensus Estimate of 70 cents. Total revenues of $2.69 billion also missed the consensus mark of $2.8 billion.
Adjusted earnings decreased 13.3% year over year to C$0.78 per share. Total revenues declined 1.3% year over year to C$3.59 billion owing to decline in Wireless equipment and Media revenues.
Investors should note that first-quarter 2019 results were reported per IFRS 16.
Wireless (61% of total revenues) declined 0.1% from the year-ago quarter to C$2.2 billion.
Service revenues climbed 4% to C$1.75 billion attributable to higher postpaid subscriber base and more number of customers choosing higher-priced plans. Equipment revenues were down 12% in the quarter to C$442 million due to lower device upgrades from existing user base and decline in gross postpaid subscriber additions owing to softness in the market.
Monthly blended ARPU (average revenue per user) was C$54.13, up from C$53.68 in the year-ago quarter. Monthly blended ABPU (average billings per user) was C$64.62, up from C$62.67 in the year-ago quarter
As of Mar 31, prepaid subscriber base totaled almost 1.6 million, a loss of 148K subscribers from the year-ago quarter. Monthly churn rate was 4.69% compared with 4.24% in the year-ago quarter.
As of Mar 31, postpaid wireless subscriber base totaled roughly 9.2 million, a subscriber gain of 381K from the year-ago quarter. Monthly churn rate declined to .99% from 1.08% in the year-ago quarter. The lower churn rate was due to enhanced customer experience and improved quality of Rogers Communications’ network.
Segment operating expense decreased 7% from the year-ago quarter to C$1.2 billion.
Adjusted EBITDA increased 8.7% year over year to C$1.02 billion. Adjusted EBITDA margin expanded 380 basis points (bps) on a year-over-year basis to 46.4%.
Cable (27.2% of total revenues) inched up 0.7% from the year-ago quarter to C$976 million. The increase was due to higher Internet subscriber base and shift of Internet users to higher- usage tiers. However, this was offset by pricing promotional activities and lower Television user base. Service revenues climbed 1% while equipment revenues remained flat year over year.
Internet revenues increased 7% year over year due to user shift toward higher-usage 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 future Data Over Cable Service Interface Specification (DOCSIS) technology users will have access to up to 10 gigabytes per second speed.
Television revenues declined 2% year over year due to decline in Television subscribers. This was offset by pricing changes and addition of new Ignite TV subscribers.
Phone revenues declined 21% year over year primarily due to bundled discount pricing.
As of Mar 31, 2018, Internet subscriber count was nearly 2.44 million, a gain of 97K from the year-ago quarter.
Management stated that Ignite TV, launched in August 2018, witnessed improved churn.
Rogers Communications lost 71K subscribers on a year-over-year basis to reach an installed base of almost 1.66 million in the Television segment. Phone subscriber count was nearly 1.1 million, a decline of 11K from the year-ago quarter.
Segment operating expense decreased 1% from the year-ago quarter to C$531 million.
Adjusted EBITDA increased 3% year over year to C$445 million. Adjusted EBITDA margin expanded 90 bps on a year-over-year basis to 45.6%.
Media (13% of total revenues) declined 12% from the year-ago quarter to C$468 million due to distribution of Major League Baseball (MLB) to Toronto Blue Jays last year.
Segment operating expense increased 8% from the year-ago quarter to C$552 million due to higher programming costs and timing of salaries paid to Toronto Blue Jays players.
Adjusted EBITDA in first-quarter 2019 was a loss of C$84 million as against gain of C$23 million in the year-ago period. The unimpressive performance was due to lower revenues and higher expenses.
Operating costs declined 0.3% from the year-ago quarter to C$3.1 billion. As a percentage of revenues, operating costs increased 80 basis points (bps) to 85.2%.
Adjusted EBITDA declined 0.2% from the year-ago quarter to C$1.34 billion. Adjusted EBITDA margin expanded 40 bps from the year-ago quarter to 37.2%.
Cash Flow Details
Cash provided by operating activities increased 13% year over year to C$998 million. However, free cash flow declined 8% year over year to C$405 million due to increase in cash income taxes for the reported quarter. This was offset by “lower interest on borrowings.”
Rogers Communications paid C$247 million in dividends in the reported quarter. The company repurchased 2.2 million shares worth $155 million.
Rogers Communications ended the first quarter with a debt leverage ratio (adjusted net debt/adjusted EBITDA) of 2.7, same as the year-ago quarter’s figure. The company exited the quarter with cash and cash equivalents of $264 million compared with $405 million in fourth-quarter 2018.
Rogers Communications recently invested $1.7 billion to secure 600 MHz spectrum in a 5G auction in Canada. This will enable the company to install the technology in urban, suburban and rural communities.
Additionally, Rogers Communications invested $100 million to expand wireless coverage to more than “1,000 kilometres of rural and remote corridors across Canada.” Moreover, the company completed the first test of 5G data in partnership with Ericsson. Further, Rogers Communications partnered with leading real estate companies “to support 5G infrastructure deployment.”
Rogers Communications will broadcast National Hockey League (NHL) game in Plains Cree for the first time by partnering with Aboriginal Peoples Television Network. Also, the company announced that it sold its publishing division to St. Joseph Communications thereby allowing it to focus on key business areas.
Guidance for 2019
Revenues are expected to increase in the range of 3. Adjusted EBITDA is expected to increase in the range of 7.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Rogers Communication has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Rogers Communication has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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