Canada’s leading telephone operator BCE Inc. (BCE) reported fourth-quarter 2013 adjusted earnings of 70 Canadian cents per share (63 cents per ADS), missing the Zacks Consensus Estimate of 65 cents. The results however, improved 16.7% from 60 Canadian cents (65 cents per ADS) in the year-ago quarter owing to a higher EBITDA at Bell.
Revenues came in at C$5.38 billion ($4.86 billion), also missing the Zacks Consensus Estimate of $5.21 billion. Strong performances by the Wireless and Media segments were offset by the weakness in Wireline voice and data services.
For full-year 2013, BCE posted earnings per share of C$2.99 ($2.69 per ADS), up 1% year over year. Revenues increased 2.1% year over year to C$20.40 billion ($18.36 billion).
EBITDA grew 5.4% year over year to C$2.00 billion ($1.8 billion) in the reported quarter fueled by strong contributions from Bell Wireless and Bell Media.
Revenue Segments
Bell Wireless: Revenues from Bell Wireless increased 3.2% year over year to C$1.51 billion ($1.35 billion). Higher service revenues (up 3.7%), resulting from post-paid subscriber growth coupled with wireless data revenue growth (up 15.2%) and better blended ARPU boosted the results.
BCE added 93,700 net wireless subscribers during the reported quarter, bringing the total to 7.78 million, up 1.3% year over year. Post-paid net additions decreased by 16.9% from the year-ago quarter to 119,520. Blended ARPU (average revenue per user) rose 2.1% year over year to C$57.92 ($52.13) on the back of increasing post-paid subscribers in wireless customer base plus more subscribers opting for mobile data services.
Churn rate (customer switch) improved to 1.6% from 1.7% in the year-ago quarter. Post-paid churn remained unchanged year over year at 1.3%, while prepaid churn improved to 3.4% from 3.5% in the year-ago quarter reflecting increased investments in customer service and retention.
Bell Wireline: Revenues from Bell Wireline fell 0.3% year over year to C$2.60 billion ($2.34 billion) due to lower local and access (down 6.6%), long distance (down 10.5%) and equipment and other revenues (down 6.3%).
Network access services (NAS) fell 7.1% year over year to 5.24 million. The decline was primarily due to competition from cable operators and substitution of the service wireless and IP-based technologies. Residential NAS losses during the quarter were 63,281 compared with 87,029 in the fourth quarter of 2012. Business NAS losses were 32,478 against 36,641 in the year-ago quarter.
BCE activated 15,690 high-speed Internet customers compared with 7,269 in the year-ago period. TV subscriber additions were 36,189, up a whopping 88.3% year over year. At the end of the fourth quarter, TV subscribers grew 5.7% year over year to 2.28 million.
Bell Media: Bell Media generated revenues of C$821.0 million ($738.9 million), up 38.9% year over year. The growth is attributed to strong advertising and high subscriber revenues from the Astral acquisition along with higher rates paid by broadcasters for Bell Media contents.
Bell Aliant: Revenues from this segment dropped 0.8% year over year to C$688.0 million ($619.2 million), as improvement in Internet and TV services were hurt by reduced local and long-distance revenues.
Liquidity
BCE exited 2013 with C$335.0 million (approximately $301.5 million) of cash and cash equivalents compared with C$129.0 million (approximately $116.1 million) in 2012. Capital expenditure for BCE during the year was C$3.57 billion ($3.21 billion), up 1.6% year over year.
Dividend
BCE’s board of directors declared a quarterly dividend of $0.6175 ($0.5557) per common share payable on April 15, 2014 to shareholders of record at the close of business on Mar 14. This will translate into an annual dividend of $2.47 ($2.22) reflecting a hike of 6%.
Guidance
For 2014, BCE expects EPS of C$3.10–$3.20 while free cash flow growth will be around 3–7%. Annual dividend per share will be $2.47 reflecting a dividend payout policy of 65–75%. Excluding Bell Alliant, revenue growth for Bell is expected around 2–4%, while EBITDA growth is estimated at around 3–5%. Capital intensity projection for Bell is around 16–17%.
Other Stocks
Among other foreign telecom firms, Telus Corporation (TU) is expected to release its fourth quarter results on Feb 13, while Rogers Communications Inc. (RCI) will release the same on Feb 12.
Another foreign stock worth considering is China Unicom Hong Kong Limited (CHU) which carries a Zacks Rank #1 (Strong Buy).
Our Take
The company displays a robust wireless business model, improving wireline operations and expanding activities in the media sector. However, stiff competition, continued decline in network access services, constant need to invest in technology and union issues remain the primary concerns for the company. BCE currently retains a Zacks Rank #4 (Sell).
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