Zacks_Analysts' Blog : Rogers Reported Mixed 3Q - Analyst Blog

Rogers Communications Inc. (RCI) declared mixed financial results for the third quarter of 2011. However, wireless business, which accounts for more than 58% of its total revenue, returned to growth after a brief struggle in the previous quarter.

Quarterly net income was $491 million or 87 cents per share compared with a net income of $380 million or 66 cents per share in the year-ago quarter. The third-quarter adjusted EPS was 88 cents, well ahead of the Zacks Consensus Estimate of 81 cents. Quarterly total revenue was $3,149 million, up 1% year over year, but fell below the Zacks Consensus Estimate of $3,382 million.

Quarterly gross margin was 39.3% compared with 37.7% in the year-ago quarter. Third-quarter operating profit was $795 million, down 3.8% year over year. Quarterly operating margin was 25.2% compared with 24.6% in the year-ago quarter.

During the third quarter of 2011, Rogers Communications generated $1,140 million of cash from operations compared with $829 million in the year-ago quarter. Free cash flow during the reported quarter was $581 million compared with $390 million in the year-ago quarter.

At the end of third-quarter 2011, Rogers Communications had $994 million of cash and marketable securities on its balance sheet compared with $878 million at the end of fiscal 2010. Total outstanding debt, at the end of the reported quarter, was $10,034 million compared with $8,654 million at the end of fiscal 2010. At the end of the third quarter of 2011, debt-to-capitalization ratio was 0.72 compared with 0.69 at the end of fiscal 2010.

Wireless Segment

Quarterly total revenue was $1,832 million, up 1% year over year. Network revenue was $1,707 million, up 1% year over year. Equipment sales were $125 million, up 1% year over year.

Quarterly adjusted operating profit for the entire segment was $815 million, down 1% year over year. Adjusted operating margin was 47.7% in the reported quarter compared with 48.5% in the year-ago quarter. In the third quarter of 2011, wireless Data revenue was $611 million, up 28% year over year. Wireless Data revenue represented around 36% of total wireless network revenue compared with 28% in the prior-year quarter.

During the third quarter of 2011, wireless segment activated 609,000 smartphones, up 15.1% 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 42% were new smartphone subscribers, which is a historic high figure. Quarterly consolidated ARPU (average revenue per user) was $61.79, down 4% year over year.

On Septemebr 30, 2011, Postpaid retail subscribers’ base was around 7.532 million, up 3.3% year over year. Smartphone customers now constituted 52% of overall Postpaid subscribers compared with 37% in the year-ago quarter. Quarterly Postpaid ARPU was $72.08, down 3.2% year over year. Monthly churn rate was 1.36% compared with 1.21% in the prior-year quarter.

Prepaid subscribers’ base was around 1.756 million, up 10.6% year over year. Quarterly Prepaid ARPU was $16.72, down 2.2% year over year. Monthly churn rate was 3.37% compared with 2.84% in the prior-year quarter.

Cable Segment

Quarterly total revenue was $940 million, down 1% year over year. Basic cable operations revenue was $826 million, up 4% year over year. RBS revenue was $96 million, down 17% year over year. Video revenue was $18 million, down 45% year over year. Quarterly adjusted operating profit for the whole segment was $379 million, up 2% year over year. Adjusted operating margin was 44.4% in the reported quarter compared with 46% in the year-ago quarter.

On September 30, 2011, Cable TV subscribers’ base was around 2.303 million, down 0.3% year over year. High-speed Internet subscribers’ base was 1.768 million, up 5.7% year over year. Digital cable terminal base was 1.767 million, up 2.8% year over year. Cable Telephony lines were 1,044 million, up 4.9% year over year.

Media Segment

Quarterly total revenue was $407 million, up 10% year over year. Quarterly adjusted operating income was $55 million, up 38% year over year. Adjusted operating margin was 13.5% in the reported quarter compared with 10.8% in the year-ago quarter.

Future Financial Outlook

Rogers Communications has provided guidance that its fiscal 2011 adjusted operating income will be $4,600 million - $4,765 million. After-tax free cash flow will be $1,850 million - $1,975 million. Wireless network revenue will be $6,525 million-$6,725 million. Wireless adjusted profit will be $3,050 million-$3,200 million. Cable revenue will be $3,250 million-$3,325 million. Cable adjusted profit will be $1,450 million-$1,500 million. Media revenue will be $1,625 million-$1,710 million. Media adjusted profit will be $160 million-$180 million.

Our Recommendation

We maintain our long-term Neutral recommendation on Rogers Communications. Currently, it has a short-term Zacks #3 Rank (Hold) on the stock.