BCE Inc.(BCE) Canada’s largest telephone operator, reported fourth quarter 2010 adjusted earnings per share (EPS) of 60 Canadian cents (59 cents per ADS), which missed the Zacks Consensus Estimate by a penny. Earnings climbed 17.6% from 51 Canadian cents in the year-ago quarter attributable to higher EBITDA, lower depreciation and amortization expenses as well as fewer outstanding shares.
Fiscal 2010 adjusted earnings rose 13.6% year over year to C$2.84 ($2.76).
Consolidated revenue inched up 0.7% year over year to C$4.68 billion ($4.62 billion) in the fourth quarter and surpassed the Zacks Consensus Estimate of $4.59 billion. Higher revenues from Bell Wireless and Bell Wireline were partially offset by lower revenue at Bell Aliant.
EBITDA nudged up 0.4% year over year to C$1.74 billion ($1.72 billion) and operating income climbed 11.3% to C$836 million ($825 million) from the year-ago quarter.
In fiscal 2010, revenue and EBITDA saw modest increases of 1.9% and 1.4%, respectively, to reach C$18.07 billion ($17.54 billion) and C$7.19 billion ($6.98 billion) from the prior year. Operating income saw a substantial 15.1% year-over-year growth to reach C$3.67 billion ($3.56 billion).
Revenue Segments
Bell Wireless: Revenue from Bell Wireless increased 8.3% year over year to C$1.3 billion ($1.28 billion) in the reported quarter, owing to higher service revenue (up 9.1% year over year) and product revenue (up 3.9% 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 strong subscriber addition and better smartphone mix.
Net subscriber addition leaped 28.3% year over year to 116,782, bringing the wireless customer base to 7.24 million at the end of the fourth quarter (up 6% from the year-ago quarter).
Post-paid net addition shot up 42.6% year over year to 156,708 customers boosted by strong smartphones (including iPhone, BlackBerry and Android phones) penetration, enhanced data services like Bell Mobile TV, and HSPA+ network services in collaboration with its Canadian peer Telus Corp. (TU). Prepaid net addition plunged to 39,926 customers from 52,938 subscribers in the year-ago quarter due to higher churn.
Blended ARPU (average revenue per user) rose C$1.26 year over year to C$52.34 ($51.66). Post-paid ARPU increased to C$63.47 ($62.64) as data usage growth partially offset the competitive smartphones pricing. On the other hand, prepaid ARPU decreased to C$16.96 ($16.74) due to the migration of prepaid to post-paid plans.
Churn upped to 2% 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 3.6% (from 3.2% in the year-ago quarter). Higher churn rate resulted from intense competitive pressure particularly from new entrants.
Bell Wireline: Revenues from Bell Wireless Wireline dropped 2.5% year over year to C$2.77 billion ($2.73 billion). Declines in local and access (down 5.4%), long distance (down 11.7%), data revenues (up 0.3%), equipment and other revenues (down 6.2%) were partially offset by higher TV revenues (up 7.9%).
Network access services (NAS) lines losses improved significantly to 64,172 in the fourth quarter from 107,503 losses in the year-ago quarter. High-speed Internet customers increased 12,099 to reach roughly 2.097 million. TV subscribers grew 23,019 to reach roughly 2.02 million attributable to higher churn (1.5% compared with 1.3% in the year-ago quarter).
Bell Aliant: Revenues from this segment dipped 1% year over year to C$777 million ($766 million), largely due to persistent declines in local and access, and long-distance revenues.
Liquidity and Dividend
The company’s cash flows from operating activities plunged 40.1% year over year to C$568 million ($561 million). Free cash flow was negative C$549 million ($542 million) in the reported quarter compared with C$15 million in the year-ago quarter. BCE invested C$860 million ($849 million), up 34.4% year over year.
BCE remains attractive for income-oriented investors based on a healthy dividend yield and continued share repurchase initiatives. On April 15, 2011, BCE will pay a quarterly dividend of 49.25 cents per share to shareholders as of March 15. BCE also repurchased C$500 million worth of shares at an average price of $30.80 during 2010 completing its entire share buyback authorization.
Outlook
For 2011, BCE expects adjusted EPS in the range of C$2.90–C$3.00 (up z8% year over year) and free cash flow in the range of C$2,000–C$2,300 million (up 2–6% year over year). BCE also guided its dividend payout ratio to be at the low end of 65% to 75% of adjusted EPS.
Taken together, Bell Wireline and Bell Wireless are expected to post a revenue growth of 1%–2% and EBITDA growth of 2%–4% for 2011.
Our Analysis
Going forward, significant investments made in 2010, continued growth in smartphone adoption, and an expanding wireless network with higher technology and speeds are expected to boost results for the wireless business.
On the wireline front, BCE continues to benefit from an improving outlook in NAS erosion, high-speed Fiber-To-The-Node (FTTN) broadband deployments, the rollout of fiber-to-the-home (FTTH) network in Quebec City, and the ongoing network enhancement to support Bell’s Fibe Internet and Fibe TV service.
However, the company is exposed to neck and neck competition with the entry of additional wireless carriers. The company competes with two carriers, Telus and Rogers Communications Inc. (RCI) in the Canadian wireless market. The wireline business also remains challenged by competition from cable companies and other alternative service providers.
We are currently maintaining our long-term Neutral recommendation, which corroborates with the Zacks #3 (Hold) Rank.
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TELUS CORP (TU): Free Stock Analysis Report
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