Canada’s largest telephone operator BCE Inc. (BCE) has reported second quarter 2011 adjusted earnings per share of 89 cents per ADS (86 Canadian cents), which surpassed the Zacks Consensus Estimate of 85 cents.
Earnings climbed 11.4% from 78 Canadian cents in the year-ago quarter attributable to higher EBITDA, lower pension costs and gains related to share-based compensation plan, partly offset by higher depreciation expense and lower tax adjustments and increased interest expense related to the CTV acquisition.
Consolidated revenue increased 11.6% year over year to C$4.96 billion ($5.12 billion) but missed the Zacks Consensus Estimate of $5.16 billion. The revenue growth was driven by the benefits of the CTV acquisition in terms of its contribution to the new Bell Media segment.
Subscriber revenue also registered a growth attributable to rate increases in Bell Media specialty sports services and enhanced Mobile TV services that offer live and on-demand access to content. However, higher revenues were largely offset by increased acquisition and retention costs as well as non-recurring expenses.
EBITDA grew 7.8% year over year to C$1.99 billion ($2.06 billion) in the reported quarter driven by the acquisition of CTV that led to solid wireless, TV and residential Internet revenue growth and improvements in operating cost, partly offset by lower EBITDA at Bell Aliant.
Revenue Segments
BellWireless: Revenue from Bell Wireless increased 6.1% year over year to C$2.63 billion ($2.72 billion) in the reported quarter, owing to higher service revenue (up 5.7% year over year) and product revenue (up 9.5% year over year).
Growth in service revenue was attributable to subscriber and wireless data revenue growth while the improvement in product revenue could be credited to healthy smartphone sales and strong subscriber addition.
Net subscriber addition dropped 62.9% year over year to 41,799 bringing the wireless customer base to 7.283 million at the end of the second quarter (up 4.2% from the year-ago quarter). Post-paid net addition fell 8.2% to 94,309 from the year-ago quarter and prepaid net loss was 57,802 versus 4,295 subscribers lost in the year-ago quarter due to higher churn.
Blended ARPU (average revenue per user) rose C$0.87 year over year to C$52.99 ($54.74). Post-paid ARPU decreased C$0.48 to C$63.18 ($65.28) due to lower voice ARPU as a result of competitive pricing and lower data usage, partly offset by higher data ARPU. Prepaid ARPU decreased C$1.47 to C$16.88 ($17.44) due to the migration from prepaid to post-paid plans.
Churn upped to 2.0% from 1.8% in the year-ago quarter on modestly higher post-paid churn of 1.5% (from 1.3% in the year-ago quarter) and prepaid churn of 3.7% (from 3.4% in the year-ago quarter). Higher churn rate resulted from intense competitive pressure particularly from new entrants and increased unlimited usage rate plan offers.
BellWireline: Revenues from Bell Wireline declined 2.0% year over year to C$2.63 billion ($2.72 billion). Declines in local and access (down 4.2%), long distance (down 1.7%), data revenues (down 3.1%), equipment and other revenues (down 35.5%) were partially offset by higher Video revenues (up 6.0%).
Network access services (NAS) lines losses improved significantly to 100,497 in the second quarter from 129,147 losses in the year-ago quarter. High-speed Internet customers increased 1,275 to reach roughly 2.11 million at the end of the second quarter.
TV subscribers grew 6,072 to reach roughly 2.03 million and churn improved to 4.8% from 6.2% in the year-ago quarter driven by improved performance in both residential and business NAS.
BellAliant: Revenues from this segment dipped 1.1% year over year to C$692 million ($715 million), largely due to persistent declines in local and access, long-distance, and equipment and other revenues, partly compensated by Internet, IP-based broadband, wireless and TV services revenues.
Liquidity and Dividend
The company’s cash flows from operating activities and free cash flow fell 9.0% year over year to C$2,115 million ($2,164.9 million) and 40.4% year over to C$692 million ($708.3 million), respectively, in the reported quarter.
BCE invested C$800 million ($5826.6 million), up 19.0% year over year in deployment of broadband fiber, upgrading of Bell’s core wireline broadband infrastructure to support commercial launch of IPTV service and construction of 4G LTE network.
BCE remains attractive for income-oriented investors based on healthy dividend payouts. On October 15, 2011, BCE will pay a quarterly dividend of C$0.5175 cents per share to shareholders as of September 15.
Outlook
For 2011, BCE reiterated its adjusted earnings estimate in the range of C$2.95–C$3.05 per share, reflecting a 6–9% increase year over year and free cash flow at C$2.2–C$2.3 billion, up 2–6% year over year. Bell Wireline and Bell Wireless as a combined entity maintained the previous guidance ranges of 9–11% for revenue growth and 8–10% for EBITDA growth.
Our Analysis
We believe the company remains benefited from the acquisition of CTV and the addition of the new Bell Media unit that resulted in upward earnings. With the world-leading HSPA+ network, continued growth in smartphone adoption, and an expanding next-generation LTE wireless networkin certain Canadian markets in 2011 are expected to boost results for the wireless business.
In the wireline front, BCE continues to benefit from improving NAS erosion, high-speed Fiber-To-The-Node (FTTN) and fiber-to-the-home (FTTH) networks as well as the traction in both Fibe Internet and Fibe TV services.
On the other side, BCE operates in an environment crowded with new wireless carriers. The companycompetes against two other national carriers Telus Corporation (TU) and Rogers Communications inc. (RCI).
The wireline business also remains challenged by competition from cable companies and other alternative service providers. Accordingly, we are maintaining our long-term Neutral recommendation on the stock.
We currently maintain a long-term Neutral recommendation on BCE supported by a Zacks #3 (Hold) Rank.
BCE INC (BCE): Free Stock Analysis Report
ROGERS COMM CLB (RCI): Free Stock Analysis Report
TELUS CORP (TU): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment