Rogers Communications Inc. (RCI) declared mixed financial results for the second quarter of 2011. Wireless business, which accounts for nearly 56% of its total revenue, experienced the hit of competition. However, an expansion of Cable TV business more than offset the weakness of wireless segment.
Quarterly net income was $423.5 million or 78 cents per share compared with a net income of $467 million or 80 cents per share in the year-ago quarter. However, the second-quarter adjusted EPS was 88 cents, well above the Zacks Consensus Estimate of 84 cents. Quarterly total revenue was $3,218 million, up 3% year over year, but below the Zacks Consensus Estimate of $3,272 million.
Quarterly gross margin was 38.2% compared with 39.3% in the year-ago quarter. However, secondt quarter operating profit was $727 million, down 5.8% year over year. Quarterly operating margin was 23.3% compared with 25.6% in the year-ago quarter.
During the second quarter of 2011, Rogers Communications generated $979 million of cash from operations compared with $953 million in the year-ago quarter. Free cash flow during the reported quarter was $459 million compared with $514 million during the year-ago quarter.
At the end of second-quarter 2011, Rogers had $2,039 million of cash and marketable securities on its balance sheet compared with $2,201 million at the end of fiscal 2010. Total outstanding debt, at the end of the reported quarter, was $9,558 million compared with $8,718 million at the end of fiscal 2009. At the end of the second quarter of 2011, debt-to-capitalization ratio was 0.71 compared with 0.69 at the end of fiscal 2010.
Wireless Segment
Quarterly total revenue was $1,817 million, up 3% year over year. Postpaid revenue was $1,609.5 million, up 1% year over year and Prepaid revenue was $82.7 million, up 8% year over year. Equipment sales were $125 million, up 44% year over year.
Quarterly adjusted operating profit for the entire segment was $786 million, down 7% year over year. Adjusted operating margin was 43.3% in the reported quarter compared with 48% in the year-ago quarter. In the second quarter of 2011, wireless Data revenue was $591 million, up 31% year over year. Wireless Data revenue represented around 35% of total wireless network revenue compared with 27% in the prior-year quarter.
During the second quarter of 2011, wireless segment activated 591,000 smartphones, up 53.5% year over year. Most of these smartphones are either iPhone of Apple Inc. (AAPL), BlackBerry of Research In Motion Ltd. (RIMM) or Google Inc. (GOOG) developed Andriod-based handsets. Out of the total, around 40% were new smartphone subscribers, which is a historic high figure. Quarterly consolidated ARPU (average revenue per user) was $62.25, down 4.8% year over year.
On June 30, 2011, Postpaid retail subscribers’ base was around 7.458 million, up 4.7% year over year. Smartphone customers now constituted 48% of overall Postpaid subscribers compared with 35% in the year-ago quarter. Quarterly Postpaid ARPU was $72.38, down 4.1% year over year. Monthly churn rate was 1.21% compared with 1.06% in the prior-year quarter.
Prepaid subscribers’ base was around 1.669 million, up 11.1% year over year. Quarterly Prepaid ARPU was $16.67, down 2.8% year over year. Monthly churn rate was 3.82% compared with 3.26% in the prior-year quarter.
Cable Segment
Quarterly total revenue was $981.4 million, up 1% year over year. Basic cable operations revenue was $859.5 million, up 5% year over year. RBS revenue was $103.3 million, down 13% year over year. Video revenue was $18.6 million, down 51% year over year. Quarterly adjusted operating profit for the whole segment was $429.7 million, up 21% year over year. Adjusted operating margin was 43.8% in the reported quarter compared with 36.4% in the year-ago quarter.
On June 30, 2011, Cable TV subscribers’ base was around 2.294 million, down 0.9% year over year. Internet subscribers’ base was 1.729 million, up 5.2% year over year. Digital cable terminal base was 1.745 million, up 2.6% year over year. Cable Telephony lines were 1,028 million, up 5.4% year over year.
Media Segment
Quarterly total revenue was $451.4 million, up 13% year over year. Quarterly adjusted operating income was $94 million, up 47% year over year. Adjusted operating margin was 20.8% in the reported quarter compared with 16.1% in the year-ago quarter.
Future Financial Outlook
Rogers Communications has provided guidance that its fiscal 2011 adjusted operating income will be C$4,600 million – C$4,765 million. After-tax free cash flow will be C$1,850 million – C$1,975 million. Wireless network revenue will be C$6,525 million-C$6,725 million. Wireless adjusted profit will be C$3,050 million-C$3,200 million. Cable revenue will be C$3,250 million-C$3,325 million. Cable adjusted profit will be C$1,450 million-C$1,500 million. Media revenue will be C$1,625 million-C$1,710 million. Media adjusted profit will be C$160 million-C$180 million.
Our Recommendation
We maintain our long-term Neutral recommendation on Rogers Communications. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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