Why Is Rogers Communication (RCI) Down 8.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Rogers Communication (RCI). Shares have lost about 8.8% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Rogers Communications Q2 Earnings Lag, Revenues Rise
Rogers Communications reported second-quarter 2023 adjusted earnings of 76 cents per share, which missed the Zacks Consensus Estimate by 9.52% but increased 13.4% year over year.
Revenues of $3.76 billion lagged the consensus mark by 1.68% but jumped 24% year over year.
In domestic currency (Canadian dollar), adjusted earnings increased 18.6% year over year to C$1.02 per share. Total revenues increased 30.5% year over year, reaching C$5.05 billion, driven primarily by revenue growth across all businesses.
Wireless Details
Wireless (48% of total revenues) increased 9.6% year over year to C$2.42 billion. Service revenues increased 7.2% to C$1.92 billion. Equipment revenues were up 19.7% to C$504 million.
Wireless service revenues benefited from growth in the mobile phone subscriber base and revenues from Shaw Mobile subscribers acquired through the Shaw transaction (completed on Apr 3).
Monthly mobile phone ARPU was C$56.79, down 3.5% year over year.
As of Jun 30, 2023, the prepaid subscriber base totaled 1.242 million, reflecting a loss of 5K subscribers against 55K added in the year-ago quarter. The monthly churn rate was 6.33% compared with 4.05% reported in the year-ago quarter.
As of Jun 30, 2023, the postpaid wireless subscriber base totaled 10.107 million, reflecting net additions of 170K compared with additions of 122K in the year-ago quarter. The monthly churn rate was 0.87% compared with 0.68% in the year-ago quarter.
Segment operating expenses increased 10% year over year to C$1.2 billion.
Adjusted EBITDA increased 9.3% year over year to C$1.22 billion. Adjusted EBITDA margin contracted 10 basis points (bps) on a year-over-year basis to 50.4%.
Cable Details
Cable revenues (40% of total revenues) surged 93.4% year over year to C$2.013 billion, primarily driven by the Shaw Communications acquisition.
Service revenues jumped 93.3% year over year to C$2.005 billion. Equipment revenues doubled on a year-over-year basis to $8 million.
As of Jun 30, 2023, the retail Internet subscriber count was nearly 4.284 million, reflecting net additions of 25K compared with additions of 26K in the year-ago quarter.
As of Jun 30, 2023, total Smart Home Monitoring subscribers reached 92K, highlighting a loss of 4K subscribers. The total Home Phone subscriber count was nearly 1.684 million, reflecting a loss of 29K customers in the reported quarter.
ARPA was C$139.68, higher than the C$133.15 reported in the year-ago quarter.
Segment operating expenses surged 89.4% year over year to C$987 million.
Adjusted EBITDA soared 97.3% year over year to C$1.03 billion.
Media Details
Media (13.6% of total revenues) revenues increased 4.1% year over year to C$686 million, mainly due to higher sports-related revenues, primarily at the Toronto Blue Jays.
Segment operating expenses increased 3.8% year over year to C$682 million.
Nevertheless, adjusted EBITDA soared 100% year over year to C$4 million, driven by higher revenues.
Consolidated Results
Operating costs increased 25.5% to C$2.86 billion. As a percentage of revenues, operating costs contracted 220 bps to 56.6%.
Adjusted EBITDA surged 37.6% year over year to C$2.19 billion. Adjusted EBITDA margin expanded 220 bps to 43.4%.
Balance Sheet & Cash Flow Details
As of Jun 30, 2023, Rogers had C$5.1 billion of available liquidity, including $0.4 billion in cash and cash equivalents and a combined C$4.8 billion available under the bank credit facility.
In comparison, as of Mar 31, 2023, Rogers had C$3.3 billion of available liquidity, including C$0.6 billion in cash and cash equivalents and a combined C$2.8 billion available under the bank credit facility.
Rogers’ debt leverage ratio increased to 5.1 times as of Jun 30, 2023, as a result of the completion of the Shaw transaction, significantly up from 3.5 times reported in the previous quarter.
Cash flow from operating activities was C$1.64 billion compared with C$453 million generated in the previous quarter. Free cash flow was C$476 million compared with C$370 million generated in the previous quarter.
Rogers paid dividends worth C$252 million and declared a C$0.50 per share dividend.
Guidance
For 2023, Rogers expects total service revenues to grow between 26% and 30%. Adjusted EBITDA is expected to grow in the range of 33-36%, up from 31-35%.
The company targets a 4.9 times debt leverage ratio by the end of 2023.
Capital expenditure is still expected between C$3.70 billion and C$3.90 billion. However, free cash flow is now expected in the range of C$2.2-C$2.5 billion compared with $2-$2.2 billion.
With respect to the Shaw Communications acquisition, Rogers reaffirmed guidance of realizing at least C$200 million of synergies in 2023, and annualized cost synergies of at least C$600 million by the end of first quarter of 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -21% due to these changes.
VGM Scores
Currently, Rogers Communication has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Rogers Communication, Inc. (RCI) : Free Stock Analysis Report
