Leading Canadian telephone operator BCE Inc. BCE reported strong financial results for the second quarter of 2015 on the back of impressive performance by its wireless service division. Both the top and the bottom line outpaced the Zacks Consensus Estimate.
Quarterly net income was approximately $617.1 million, up 25.2% year over year. GAAP earnings per share were 73 cents, up 15.4% year over year. Adjusted net income per ADS (American Depository Share) was 71 cents, significantly above the Zacks Consensus Estimate of 67 cents.
Total revenue came in at approximately $4,331 million, up 2% year over year and ahead of the Zacks Consensus Estimate of $4,125 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $1,786.4 million, up 2.5% year over year. Quarterly adjusted EBITDA margin stood at 41.3% against 41.1% in the prior-year quarter.
Cash Flow
During the second quarter of 2015, BCE generated approximately $1,496.9 million of cash from operations, down 0.5% year over year. Free cash flow in the reported quarter was around $757 million, up 14.2% year over year.
Segments in Detail
Bell Wireless: Revenues from Bell Wireless increased 10% year over year to around $1,379.8 million. Notably, higher postpaid subscriber mix, strong data revenue growth and increased product revenues boosted the top line. Services revenues were around $1,251.4 million, up 7.7% while Product revenues were up 41.9% at $121.2 million.
Blended ARPU rose 5.3% year over year to $50.80 on the back of higher data usage and a greater mix of postpaid customers in the total subscriber base. Wireless data revenue surged 24.2% while postpaid customer churn was 1.23% against 1.15% in the year-ago quarter.
During the reported quarter, BCE added a net of 61,033 postpaid wireless subscribers compared with 67,951 in the prior-year quarter. As of Jun 30, 2015, the company had 7,206,453 postpaid subscribers, up 4.4% year over year. The total wireless subscriber base grew 2.2% to 8,124,824. At second-quarter end, 77% of the total postpaid wireless customers used smartphones compared with 75% at the end of the year-earlier quarter.
Bell Wireline: Revenues from Bell Wireline fell 0.2% year over year to approximately $2,473.5 million. Wireline data revenues were up 2.8% to $1,442.4 million. Local and access revenues declined 3.8% to $672.4 million. Long distance revenues were down 11.2% to $168.3 million.
Network access services (NAS) lines fell 5.8% year over year to 6,903,652. The decline was primarily due to competition from cable operators, business customer conversion from voice lines to IP-based services, and customer shift to high speed Internet from conventional technologies. Residential NAS losses during the reported quarter were 75,819 compared with 88,060 in the year-ago quarter. Business NAS losses were 37,690 against 42,860 a year ago.
As of Jun 30, 2015, BCE had 2,674,796 TV subscribers, up 4.4% (including 1,040,791 IPTV customers, an increase of 32.9%) and 3,316,351 high-speed Internet subscribers, up 4.3% year over year. In the second quarter, Bell Wireline added a net of 18,606 high-speed Internet customers and 50,466 IPTV customers, but lost 33,776 satellite TV subscribers.
Bell Media: Bell Media generated revenues of approximately $601.7 million, down 2.8% year over year. The downside was driven by the loss of NHL playoff broadcast rights on specialty sports services TSN and RDS, augmented competition from large players in social media and general softness in the conventional TV market.
Guidance
For full year 2015, BCE reaffirmed its financial guidance. The company expects adjusted earnings per share of C$3.28–C$3.38 while free cash flow growth will be around 8–15%. Annual dividend per share will be C$2.60 reflecting a dividend pay-out policy of 65–75%. Revenue growth for BCE is expected around 1–3%, while EBITDA growth is estimated at around 2–4%. Capital intensity projection for BCE is pegged around 17%.
Stocks to Consider
BCE currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in this industry are Chunghwa Telecom Co., Ltd. CHT, Nippon Telegraph and Telephone Corporation NTT and Shenandoah Telecommunications Co. SHEN. All the three stocks carry a Zacks Rank #1 (Strong Buy).
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